Japan will start debating a possible sales tax hike after next month’s upper house elections to rein in the nation’s bulging debt, prime minister Naoto Kan said Monday, stressing that sturdy finances are vital for supporting a strong economy and society.
Kan said that a decision on raising the consumption tax, now at 5 percent, likely wouldn’t come for at least two to three years, but said a recent proposal by the opposition conservatives to raise it to 10 percent could be considered.
“Strong finances are indispensable for economic growth and social security,” he told a news conference, vowing to continue the government’s effort to slash wasteful spending. “But in order to sustain growth, we also need tax reforms.”
Japan will hold elections in the parliament’s upper house on July 11. Kan’s ruling Democratic Party of Japan controls the more powerful lower house, so even a dismal result in next month’s vote won’t affect its grip on power. But a poor showing would make it more difficult to pass key legislation and could force it to add other coalition partners.
Kan will make his diplomatic debut later this week when he attends the Group of 8 and Group of 20 summits in Canada _ where he said that “fiscal reconstruction” would be at the top of the agenda.
Beyond next month’s elections, Kan faces huge, intertwined problems, from tackling Japan’s aging, declining population to containing its growing public debt, which last year reached 218.6 percent of its gross domestic product, according to the International Monetary Fund.
A fiscal hawk and social progressive, Kan reiterated warnings that Japan could face a crisis similar to the one that has crippled Greece if it doesn’t urgently deal with its debt burden _ although experts have said the comparison is overstated given that most of Japan’s government bonds are held domestically.
“In order to support a strong economy, we need strong government finances,” he said. “We will start comprehensive discussion on the sales tax after the upper house elections. I believe an increase of 10 percent proposed by the Liberal Democratic Party could be considered.”
The Democrats, who defeated the business-friendly, conservative LDP in lower house elections last August, will compile a basic policy about a consumption tax increase by March 2011, Kan said.
He added that the debate would be part of larger tax reforms that would involve various other taxes, as well as tax returns, tax rates and other steps to cushion the impact, including possible corporate tax cuts.
The plainspoken Kan took office after his predecessor, Yukio Hatoyama abruptly quit after just eight months in office over his broken campaign promise to move the Marine Corps Air Station Futenma off the southern island of Okinawa.
Kan is enjoying a jolt of public support, with approval ratings of around 50 percent. That’s down from his initial approval ratings in the 60-70 percent range _ perhaps because of the tax hike talk _ but far better than Hatoyama’s, which fell below 20 percent before his resignation after only eight months in office.