LDP study panel proposes raising consumption tax by renaming it ‘social services tax’

   A ruling Liberal Democratic Party study panel on fiscal reform on November 21 published a report calling for the consumption tax to be renamed the “social services tax” so that its revenue be used exclusively for funding social services and for the tax rate to be raised to 10 percent from the present 5 percent. .

   The study panel, chaired by former Chief Cabinet Secretary Yosano Kaoru, intends to use this proposal as the key discussion paper at the LDP Tax System Research Commission meeting later this month.

   The report calls for further cutbacks in social services on the grounds that the need now is to “increase the effectiveness and fairness in using tax money for social welfare benefits” at a time when “this area of expenditure is causing a national fiscal crunch extending into the future.”   

   It also states that if the government continues the policy of further cutting expenditures in order to balance the budget, it may make it more difficult to provide necessary social services, and that the task now is to carry out a revenue reform at the same time as an appropriation reform. This is how the study panel proposes a specific rate of the future consumption tax and its timing.

  The study panel has proposed that the present consumption tax be renamed the “social services tax” because they found it difficult to further cut expenditures on social services  in the aftermath of the LDP’s crushing defeat in the recent House of Councilors election, held after a series of adverse social services reforms.

   The report proposes dividing fiscal policy into two areas: social services and non-social services, and asks the pubic to bear costs in accordance with benefit levels, thus asking the public to “choose a consumption tax increase if it wants improvement in social services.”

   Sonoda Hiroyuki, who chairs the study panel, has said that the LDP Tax System Research Commission will discuss the specific timing of the consumption tax increase.

   However, the report states it will be necessary to set out to increase the consumption tax in FY 2009 in order to implement taxation measures to ensure a stable revenue as early as possible, considering that the law to raise the government share of the basic pension contribution to 50 percent from the present 33 percent will go into effect in FY 2009.
- Akahata, November 22, 2007