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Tuesday, May 31, 2011

Raise sales tax in stages, advisers tell Kan reform council

Staff writer

The consumption tax should be raised in stages to prevent adverse fluctuations in the economy, a report compiled by government advisers said Monday.

The report was submitted to the Council for Intensive Discussion on Social Security Reform headed by Prime Minister Naoto Kan and is being viewed as groundwork for an upcoming attempt to raise the unpopular levy, which stands at 5 percent.

Last week, the council agreed that the sales tax must be raised to 10 percent by 2015 to cover the nation's snowballing health, public pension, and nursing care costs, which are projected to hit ¥27 trillion in fiscal 2015.

The last time the sales tax was raised was in 1997, when then Prime Minister Ryutaro Hashimoto hiked it to 5 percent from 3 percent. Japan promptly slipped into recession, but the advisers' report said that the tax hike "is not the main cause of economic recession."

Citing Germany, which raised its value-added tax in 2007, the report concluded that a tax hike will not necessarily drive Japan into another recession like the March 11 disasters recently did.

The report was mainly written by Hiroshi Yoshikawa and Hiroshi Ibori, economics professors at University of Tokyo who are known to be fiscal hawks.

The report also emphasized the importance of a tax hike, saying that the need is "much higher than in 1997 because the (government's) financial condition has deteriorated.

Generally speaking, a tax hike usually places a heavier burden on low-income households. But the report said that the burden could be reduced by revising other tax and social security systems, and frowned on the idea of adopting a lower tax rate for basic products, such as food.

Also, a report from the ruling Democratic Party of Japan was submitted that mentioned the need to unify the three public pension systems and proposed creating a minimum monthly pension benefit of ¥70,000.

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The Japan Times

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