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Friday, Sept. 28, 2007

'NOT FIRST THING WE NEED TO DO'

LDP executives opt for talk, not action, on tax system overhaul


Staff writer

Apparently testing the waters before backing a possible consumption tax hike, the new top executives of the ruling Liberal Democratic Party soft-pedaled the sensitive topic in separate interviews Thursday.

In its policy platform put forward for the House of Councilors election in July, the LDP promised to hold comprehensive discussions on tax reform starting this fall, with an eye to overhauling the tax system by the end of fiscal 2007, which ends in March.

But during an interview on Thursday, LDP Secretary General Bunmei Ibuki ruled out any decision on the matter in the immediate future.

"We must eventually decide whether to increase the consumption tax or rely on a natural increase in tax revenue (to cover increased social security costs), but (I think) it is a little bit too early for a decision," Ibuki said.

In 2004, the Pension Law was revised to increase government funding of the pension program from one-third to a half by 2009. Experts say that an increase in the 5 percent consumption tax is unavoidable for covering the change.

However, the LDP has so far refused to reveal its position on a tax hike.

Instead, Toshihiro Nikai, chairman of the LDP's decision-making General Council, has called for a discussion on whether a tax increase is necessary.

"First of all, we must rack our brains to cut government spending under the current fiscal conditions," Nikai said. "But if it becomes clear that even (cost cutting) is inadequate as a source of revenue, I think it is important to deepen discussions over the issue of the consumption tax."

"The consumption tax issue has always been taboo," Nikai said, adding that the time had come for the ruling party to openly discuss the matter.

"(The LDP) should earnestly listen to voters" about whether to raise the consumption tax, Nikai said, signaling its emergence as a major campaign issue in the next House of Representatives general election.

Last year, as a party presidential candidate, Sadakazu Tanigaki, the new chief of the LDP's Policy Research Council and a specialist in fiscal issues, advocated raising the consumption tax rate to 10 percent by the mid-2010s.

On Thursday, however, Tanigaki, a former finance minister, seemed to backtrack, commenting that a thorough discussion of the issue was now necessary.

"I think (the LDP) will probably eventually come to the conclusion that (the government) must (raise) the consumption tax," Tanigaki said. But "I don't necessarily think that (tackling the consumption tax issue) is the first thing we need to do."

Ibuki, Nikai and Tanigaki were appointed this week to their posts by new LDP President Yasuo Fukuda.

DPJ rejects tax talks

The opposition Democratic Party of Japan will not accept backroom talks with the ruling coalition about tax reform, including whether to hike the consumption tax, the chief of the DPJ's tax panel has said.

Veteran lawmaker Hirohisa Fujii said in an interview Wednesday that his party "has no intention of discussing" tax reform in secret with the ruling coalition.

Prime Minister Yasuo Fukuda is calling for consultations with the DPJ and other opposition parties to find ways to implement tax reform, given that the DPJ-led opposition bloc controls the House of Councilors.

"It is important for the ruling and opposition camps to clarify their positions and let the people judge," Fujii said. "We should not allow any behind-the-scenes consultations on the matter."

While the government and the ruling Liberal Democratic Party and its coalition partner New Komeito aim to raise the consumption tax from the current 5 percent, the DPJ maintains the tax rate should be kept intact.

Fujii said the DPJ wants the consumption tax rate held steady "at least until the (next) general election."

He added the DPJ is working hard to draw up a platform for tax reform in December.

Under the current system, roughly 40 percent of the ¥13 trillion in consumption tax revenue is allocated to help finance local governments either through local tax grants or direct allocations.

He said the consumption tax should be made entirely a national tax revenue source, with the money going toward the government's burden in the basic pension plan.

Nukaga seeks debate

Finance Minister Fukushiro Nukaga said Thursday the Democratic Party of Japan should come to the negotiating table and discuss tax reform with the government and ruling parties.

"Unless the DPJ accepts talks with us, we will not be able to present to the public whichever of the tax reform proposals — the government's or the DPJ's — is better," Nukaga said.

Pointing out that the ratio of the government's burden in the basic pension plan is scheduled to increase from the current one-third to 50 percent in fiscal 2009, Nukaga said the government needs to look at comprehensive tax reform, including a possible hike in the consumption tax, to cover expected revenue shortfalls.



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