'No Elections Before Sales Tax Hike Agreement', Noda Repeats

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

20 January 2012

Following the recent cabinet reshuffle which saw the appointment of Katsuya Okada as deputy prime minister with responsibility for negotiating social security and tax reform with the parliamentary opposition, Japan’s Prime Minister Yoshihiko Noda has re-emphasized that he does not intend to call for elections before the approval of consumption tax increases.

While Noda was able to fulfil his government’s target to produce, before the end of last year, a detailed plan for future consumption tax rises, it was only possible after his personal intervention at a meeting of the ruling Democratic Party of Japan (DPJ). Even so, nine DPJ members in the lower house of parliament have subsequently resigned from the party, and certain elements in the party still remain opposed to the tax hikes.

Noda has therefore now felt it necessary to reinforce his message to a recent DPJ convention in Tokyo. He called on the DPJ to unite around the consumption tax policy and said that Japan’s economic future would be extremely difficult without it.

The government has a long-held medium-term policy of funding Japan’s increasing social security costs and halving its primary budget deficit by 2015, largely by the means of doubling consumption tax to 10% in stages.

Doubling the tax would raise about JPY2.5 trillion (USD32.5bn) in new tax revenues for a country which is currently financing much of its budget by issuing bonds, despite already having a public debt of over 200% of its gross domestic product.

The government has persistently said that the timing of the consumption tax increases would be determined by the strength of future growth in the domestic economy. It had been expected that the first 3% rise in the consumption tax, to 8%, would be introduced in October 2013, with another increase sometime in 2015. To obtain DPJ approval, the first tax increase was, however, delayed to April 2014, with the final hike in October 2015.

Okada will have the responsibility of putting the tax increase programme to the opposition parties, and incorporating their views, before legislation is required to be presented in parliament by the end of March this year. Noda has emphasized that responsibility for taking what would be the unpopular action of raising taxes should be by way of bipartisan parliamentary approval.

However, the DPJ’s main parliamentary opposition, the Liberal Democratic Party (LDP), which is able to block any government legislation and are sensing the opportunity of regaining control of the lower house, are continuing to insist that a general election (which is due in 2013) be held before they will agree to consider the government’s measures.

Noda has already committed to calling for an election before any consumption tax rise is actually implemented, but has resisted any further concessions. His remarks to the DPJ convention reinforced that message, while he is also reported as repeating, in a subsequent interview, that he is not presently thinking of holding an early election, and will not do so until after approval of the tax rises with the necessary LDP support.

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