Hatoyama Sticking To Japan Consumption Tax Pledge

by Mary Swire, Tax-News.com, Hong Kong

25 January 2010

Japanese Prime Minister Yukio Hatoyama has reiterated his pledge that consumption tax will not be raised for at least four years.

He told the Japanese parliament on January 19 that the government is committed to carrying out its election promises to cut wasteful spending and consolidate the budget before making a decision on whether an increase in consumption tax is necessary.

Hatoyama's remarks would appear to contradict, however, comments made two days earlier by Deputy Prime Minister Naoto Kan, who was recently given the finance brief, when he said that a discussion on the consumption tax could take place as early as the 2011 fiscal year.

Explaining in a television interview that he intends to spend this year "thoroughly reviewing fiscal conditions," Kan said that he "would like to discuss necessary steps, whether that means the consumption tax or (a new) green tax."

Last month, Hatoyama announced details of his government’s maiden budget, worth USD1 trillion and the largest in the country’s history.

Despite rising debt, the Japanese government has continued with its policy of investing through the downturn to ensure a strong recovery. However, the government’s JPY92.3 trillion (USD1 trillion) budget will sink Japan further into the red, with spending expected to outweigh revenue by around JPY45 trillion (USD484bn), financed mainly by a JPY44.3 trillion bond issuance.

In the longer-term, Japan, like many other developed nations, faces the problem of financing an increasingly ageing and economically inactive population, and increasing the consumption tax, currently 5%, to help absorb the growing burden is a central part of this debate. Many politicians and economists favor an increase in the levy to around 10%, but the proposal is very unpopular with the voting public, hence Hatoyama's decision to defer the difficult decision.

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