Japan Press Weekly

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2012 January 6 - 10 [POLITICS]

Gov’t decides on 10% consumption tax in 2015

The government and the ruling parties on January 6 officially decided to increase the consumption tax rate to 8% from the present 5% in April 2014 and then to 10% in October 2015.

The ruling Democratic Party of Japan has taken the first step in raising the consumption tax rate and backpedaling on social security programs in a unified reform plan despite its no-tax-hike pledge.

Prime Minister Noda Yoshihiko said he will call for talks regarding the plan with opposition parties with the intent of submitting relevant bills to the ordinary Diet session within this fiscal year.

The government explains that all revenues from the consumption tax are to be used for pension, healthcare, and nursing-care programs as well as for countermeasures to the falling birthrate.

However, it will not introduce the reduced tax rate for food. Instead, it will consider an income tax rebate or providing cash rebates.

At the same time, the government says it will work to cut pension benefits due to falling prices, and raise medical charges for the elderly people aged between 70 and 74.

What then would an elderly couple’s financial condition look like? Here is a calculation in the case of a couple at age 75 or older: The wife receives basic pension benefits; the husband receives employee’s pension benefits; and their annual benefits amount to 2.39 million yen.

Their pension benefits would be reduced by 28,800 yen a year in accordance with the consumer price indexation. Their welfare burdens would increase by 11,000 yen a year because of healthcare and nursing-care insurance premium hikes. From April 2014, they would annually have to pay out an extra 50,000 yen due to the 8% consumption tax rate. From October 2015, they would bear the burden of another 33,000 yen a year with the increase in the consumption tax to 10%.