Consumption tax increases to cover tax revenue shortfall?

Japan Press Weekly

Japan Press Service Co., Ltd. is the only news agency providing information of progressive, democratic movements in Japan

Consumption tax increases to cover tax revenue shortfall?

An increase in the consumption tax rate has become a key political issue.

Finance Minister Kan Naoto on a Fuji TV program aired on February 14 said, “The government will start a full-fledged discussion about a consumption tax increase and an introduction of an environmental tax in March.” He also stated that an increase in the consumption tax rate will be a key issue in the next general election.

Advocates of a consumption tax increase insist that a decline in tax revenues and an increase in basic expenditures will result in difficulties in fiscal management. In reality, however, corporate tax breaks are the main cause of the fall in tax revenues.

The government estimates that this fiscal year’s tax revenues will be about 37.4 trillion yen. Of this amount, the consumption tax revenue will reach 12.2 trillion yen while revenue from corporate taxes will only be about 6 trillion yen.

The consumption tax revenue between 1989 and 2010 amounted to about 224 trillion yen in total.

In contrast, during the same period, the corporate tax rate was lowered from 43.3% to 30%. As a result of this preferential taxation, reduction in total three corporate-related taxes, including the corporate tax, the corporate inhabitant tax, and enterprise tax, amounted to about 208 trillion yen.

The consumption tax revenue has been used to cover the shortfall in revenues from corporate taxes.

For the Hatoyama administration, which intends to maintain the current taxation system benefiting large corporations, a consumption tax hike is the trump card it wants to use to secure government revenue.

The Japanese Communist Party has repeatedly argued that if the government decides to put an end to the 5 trillion yen for military spending and excessively generous tax breaks for large corporations and the wealthy, fiscal resources will be secured without having to rely on a consumption tax increase.

- Akahata, February 15, 2010