Japan Press Weekly

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2010 September 15 - 21 [ECONOMY]

Keidanren’s tax proposal will demolish domestic demand

To sweep away people’s anxieties and sense of hopelessness, and to achieve economic growth and improved living standards, the tax system, national finance and social services need to be reformed urgently as one body, the proposal states. It calls for an immediate increase in the consumption tax rate and further corporate tax cuts.

Ultimate lavish spending

The Keidanren proposal calls for the consumption tax rate to be immediately raised to at least 10 percent, and to 15 percent or more by the mid 2020s. In advance of this, it calls for a corporate tax cut of at least 5 percent and a two-digit cut as soon as possible.

The proposal represents the greedy demands of large corporations that they should be given tax breaks and that ordinary people, on whom the consumption tax weighs heavily, should shoulder higher taxes while their livelihoods and the economy remain depressed.

Anxiety is spreading with the high yen exchange rate because the Japanese economy is structured on excessive dependence on foreign demand to make up for the very weak state of domestic demand. The proposed consumption tax increase is a reckless quest for increased revenues and will deal a fatal blow to the staggering domestic demand by imposing heavier burdens on households and small- and medium-sized enterprises.

Nakano Takeshi, associate professor at Kyoto University, commented as follows: “Corporate tax cuts when there is no demand will end up in increasing profits in the corporate sector and will not encourage domestic investment. ... Thus, corporate tax cuts are a form of ultimate lavish spending” (Nikkei Veritas, June 27).

Large corporations in the past year increased their internal reserves by more than 10 trillion yen to 250 trillion yen in total. They increased dividends and executive compensation, but decreased workers’ wages and investment on research and development (R&D) in order to accumulate increased profits. Corporate tax cuts will only benefit the large shareholders and executives and intensify currency speculation.

The major reason behind people’s anxiety and sense of helplessness is the budget deficit which has been swollen with the wasteful use of tax money on large-scale public works projects and the excessively favorable tax system for large corporations and the wealthy since the 1990s. People are expressing concerns such as, “The large amount of government deficit may rebound on the general public in the form of future regressive tax increases,” or “Due to the budgetary deficit, the government can’t increase the budget for an improvement in people’s living conditions.”

The Keidanren’s call for a consumption tax hike should be out of the question. People are anxious about the possibility of an increase in their taxes, especially a tax affecting people’s daily expenses. An increase in the consumption tax will turn people’s anxieties into a harsh reality.

Prime Minister Kan Naoto reiterated, “When discussing the future of social welfare services and fiscal resources, we should include raising the consumption tax in that process.” A big business-style argument that the only way to secure sufficient budgets for people’s livelihoods is to raise the consumption tax rate is running rampant among business leaders. The JCP has shown that most of the revenues gained from a consumption tax hike will be used to decrease the corporate tax.

How to break through stagnation
The need now is to reform the economic structure by creating democratic rules to prevent large corporations from further exploiting workers and small- and medium-sized enterprises to increase profits. The government should also establish a system to require that large corporations use part of their enormous excess profits and reserves for the benefit of the general public. Economic development based on domestic demand through such measures is the appropriate way to increase tax revenues.

In addition, the only way to overcome economic stagnation is to drastically reduce the five trillion yen military budget and put an end to the excessively regressive tax system that benefits large companies and the wealthy.
- Akahata, September 16, 2010