Japan Press Weekly

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2007 October 24 - 30 [POLITICS]

Government panel’s tax increase scenario will devastate Japan’s economy

Akahata editorial (excerpts)

In the October 17 meeting of the Council on Economic and Fiscal Policy, a government panel headed by Prime Minister Fukuda Yasuo, private-sector members of the panel including Japan Business Federation (Nippon Keidanren) Chairman Mitarai Fujio jointly submitted an estimate of tax increases, causing a sensation.

They worked out the amount of tax increase that they say is necessary depending on the extent of budget cuts to be made and economic growth rates.

The estimate says that by FY 2011, no tax increase will be necessary if the budget of the national and local governments combined can be reduced by 14.3 trillion yen with the economic growth rate running high. But it says a tax increase of 6.6 trillion yen will be necessary if the amount of budget cuts reaches only 10 trillion yen and the economy growth is slow.

Proven failed policy

Those two cases are based on the assumption that severe cuts in social welfare services will be made, including slashes in the state social welfare spending by 220 billion yen every year until FY 2011.

Since the formation of the Koizumi Cabinet, the amount of natural growth in the social welfare budget caused by the aging of the population has been slashed by a total of 1.4 trillion yen. Increases in the burdens and reductions in the benefits are prevalent in all fields of social welfare programs, resulting in a situation in which more and more people in need of public assistance have been abandoned.

Welfare Minister Matsuzoe Yoichi in a CEFP meeting said, “The budget retrenchment has almost reached its limit.” Masuzoe’s remarks show the failure of the “Basic Policies for Economic and Fiscal Management and Structural Reform 2006” which the Koizumi government drew up in 2006 and which served as the basis for the CEFP calculations.

Business leaders in the CEFP meetings urged the Fukuda cabinet to make as short as possible the period of freeze that the cabinet is considering imposing on the increase of medical payments for the elderly.

Without ending the government policy of cutting the budgets for social welfare programs, it is impossible to create a “country where the elderly can live without anxieties,” as Prime Minister Fukuda put forward as a goal.

The estimate also predicts that in FY 2025 a tax increase of 31 trillion yen will be required.

These calculations presuppose that both military expenditures and public works projects expenditures will continue to increase at a rate equivalent to the nominal economic growth rate until 2025.

The CEFP discusses increases in the consumption tax rate as if there is no other source of tax revenue than the consumption tax. Such a way of limiting discussions aims at forcing the public to accept the necessity of consumption tax hikes in order to serve the interest of business circles that demand reductions in corporate taxes in return for consumption tax hikes.

While Japan’s workers bear social insurance premium burdens 1.5 times heavier than Sweden’s workers, Japan’s corporations bear burdens of corporate taxes and social insurance premiums combined only 50 to 60 percent compared to corporations in Sweden or France, according to materials submitted to the CEFP meeting by Economy, Trade, and Industry Minister Amari Akira. Japan’s business circles and major corporations have the capacity to take on more burdens.

Review revenue sanctuaries built into LDP policies

Cuts in social welfare program budgets and consumption tax hikes are the worst policies because they further curb household expenditures, the weakest point of the Japanese economy, and damage Japan’s economy and finances.

In order to reconstruct the public finances without damaging the economy, the government must put an end to the wasteful use of tax money.

It is indispensable to review the revenue sanctuaries built into the Liberal Democratic Party policies. The government must cut military budgets for the Self-Defense Forces’ overseas deployment and the U.S. forces realignment plan, including relocation of the U.S. marine units from Okinawa to Guam that will cost three trillion yen. It must also impose fair tax burdens on major corporations and the wealthy. - Akahata, October 24, 2007