Resignation Of Japanese PM Throws Tax Proposals Into Disarray

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

08 September 2008

The recent resignation of Japan's Prime Minister, Yasuo Fukuda, may potentially throw the country's current debate over tax reforms into disarray, as one of the candidates vying to replace him has emerged as an advocate of higher taxes.

Mr Fukuda announced his resignation early last week - despite unveiling a set of tax reform proposals just days beforehand - citing falling approval ratings as one of the key reasons.

Since news of his resignation broke, a string of candidates keen to take Fukuda's place have emerged, with Yuriko Koike potentially standing to become the country's first ever female Prime Minister.

It is conservative former foreign minister, Taro Aso, though, who is noted for his flamboyant and outspoken manner, who is currently leading the polls as frontrunner for the position - with economic and fiscal policy minister Kaoru Yosano hot on his heels.

Aso, secretary general of the governing Liberal Democratic Party, has emerged as a steadfast opponent of a proposal to raise Japan's 5% consumption tax - a hotly contentious issue - to increase tax revenues, arguing that such a move would put the entire economy in jeopardy.

Yosano, on the other hand, has earned notoriety with his strong promotion of fiscal discipline, and is a well-known advocate of raising taxes as a means of fixing Japan's long-term budgetary problems.

Appropriate methods of tackling the fiscal deficit with regards to taxation in Japan have been under discussion for some time now, and prior to the news of Fukuda's resignation, a terse debate over economic reforms took place between Japan's coalition government and the New Komeito party (the junior member of the ruling coalition).

Just last month, the coalition hit a stumbling block when their economic reform package received criticism from the New Koneito's, who were, at the time, campaigning for the introduction of a flat income tax cut to benefit low income earners, as opposed to the coalition's plans to try and introduce measures which would benefit the country's businesses.

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