Support For Japanese Earthquake Tax Increase

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

19 April 2011

Around two-thirds of Japanese citizens were found to agree that a tax increase would be acceptable if the revenue so generated is used to finance reconstruction after last month’s earthquake and tsunami, according to recent opinion polls.

In a survey published by the Japanese newspaper, Nikkei, 38% of replies said they would approve of a tax hike, 31% replied that both a tax hike and bond issuance would be needed, and 13% hoped that the increased issuance of government bonds alone would be sufficient. In a further survey in the Mainichi newspaper, 38% would accept a tax rise, with some 33% opposed.

The government has promised to produce an interim reconstruction budget, of around JPY4 trillion (USD48bn), by the end of this month, and had hoped to restrict the use of bond finance. It is not thought to be likely that Japan can avoid issuing bonds in succeeding reconstruction budgets, given that the total damage from the disaster is now being estimated at some JPY25 trillion.

However, concern is already being expressed that the size of the reconstruction effort that will eventually be necessary will cast doubt on the success of Japan’s on-going effort to contain the size of its public debt, which is already twice the size of its gross domestic product.

In the meantime, the government will hope that the opinion polls may provide some impetus for the opposition parties, whose support will be needed in the parliamentary upper chamber, to join with it in enacting the forthcoming budget’s policies and any other reconstruction measures, including the issuance of additional government bonds. However, there is little sign, yet, of the emergence of such a ‘grand coalition’, despite the extraordinary situation in which the country finds itself.

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