Japan Press Weekly

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2011 June 1 - 7 [POLITICS]

Government panel approves 5% consumption tax hike

A government panel on social security reform on June 2 finalized its proposal calling for an increase in the consumption tax from 5% to 10% by 2015.

Based on this proposal, the government will formulate a bill to revise social welfare services and have it enacted by the end of this fiscal year.

The proposal states that the consumption tax revenue will basically cover the total cost for pension benefits, medical and nursing-care services, and programs responding to an aging society.

The government estimates that expenditures to social welfare services will reach 47.4 trillion yen in 2015. Even if the consumption tax rate is increased to 10%, its tax revenue will be only 25 trillion yen, 22 trillion yen short. The expenditures will increase to 61.3 trillion yen in 2025. In order to cover expenditures by the consumption tax revenue, it will be necessary to raise the consumption tax rate to 25%.

The proposal opens the way for a continual consumption tax hike under the pretext that the consumption tax revenue will be earmarked for social welfare programs.

In an agreement to form a coalition government concluded in September 2009, the ruling Democratic Party of Japan promised not to raise the consumption tax rate for four years.

The government panel’s proposal explains that an increase in the consumption tax will lead to the improvement of social welfare programs. However, it also presents a plan to drastically minimize the government’s role in social welfare and lower the level of the services by introducing several measures, including an increase in the pension eligibility age and patients’ share of payments at hospitals as well as a promotion of private companies’ participation in the childcare service industry.