Japanese Prime Minister Naoto Kan’s ruling party on Thursday outlined its determination to rebuild the nation’s finances and slash its deficit in its new manifesto ahead of elections next month.
Changing course from his predecessor Yukio Hatoyama, who had focused on foreign policy shifts and higher social welfare spending, fiscal hawk Kan called for a full debate on tax reform, including whether to hike sales tax.
“Politics is power, and power must be used to remove the cause of people’s unhappiness,” Kan wrote in the introduction to the Democratic Party of Japan’s 2010 manifesto unveiled Thursday ahead of next month’s upper house election.
The centre-left leader took office last week pledging a fiscal policy overhaul to reduce the world’s biggest public debt mountain, warning of the risk of a Greece-style meltdown for Japan if left unaddressed.
“The turmoil in Europe, triggered by the financial collapse of Greece, is never an irrelevant problem for Japan,” Kan said at a press conference Thursday.
“Unless Japan addresses this issue, institutions like the International Monetary Fund may take control of the country’s fiscal policy,” he added, referring to austerity terms imposed on Greece by the IMF in return for funds.
Kan said the DPJ would call for a full debate on tax reform and did not rule out the possibility of doubling the five percent sales tax, with the aim of drawing up a plan within the financial year.
“We decided to stipulate that we will start discussions on consumption tax, which has long been a taboo. We want to draw up a basic tax reform plan, including an appropriate consumption tax rate, within fiscal 2010,” said Kan.
Despite crawling out of a severe year-long recession in 2009, Japan’s recovery remains fragile with deflation, high public debt and weak domestic demand all concerns for policymakers.
DPJ policy research committee chairman Koichiro Genba said any tax reform would not be implemented before “autumn 2012″ and that the government’s priority was to “get the country out of deflation”.
As its mid-term goal, the DPJ pledged to slice the country’s deficit in half or less by the year to March 2016, with a longer term ambition of eliminating it by fiscal 2020.
In its manifesto, the DPJ also echoed a pledge by new Finance Minister Yoshihiko Noda to make the “utmost effort” to cap the issuance of government bonds next year at 44.3 trillion yen (480 billion dollars).
After decades of stimulus spending and low tax receipts, Japan’s public debt stands at around 950 trillion yen (over 10 trillion dollars), nearly double gross domestic product, as the government issues more bonds to pay for hefty outlays.
Japan collects less than half the taxes it needs to cover its spending, and must borrow the rest in a climate of increased scrutiny for sovereign bond issuers as Europe’s debt woes deepen.
Kan, who served as finance minister under Hatoyama, said in his first policy speech last week that he would target average real GDP growth of two percent a year until 2020.
Reiterating Kan’s earlier comments on foreign policy, the DPJ also pledged to deepen the Japan-US alliance and honour a plan to keep a controversial US airbase on the southern island of Okinawa.
“We need to keep the current balance of the US military forces in Japan,” Genba said.
Hatoyama quit after reneging on an election promise to move the Futenma airbase off the island.