The government formally adopted a plan Friday to hike the consumption tax in 2014 as Prime Minister Yoshihiko Noda vowed to push for shrinking the size of the Diet and the cost of running the bloated bureaucracy to appease frustrated voters.
Noda’s Cabinet meanwhile pledged to attach an additional clause to the tax bills that states the government will prepare legislation “for the next reform.”
This was immediately seen as a stepping stone to a further tax hike because key members of the government and the DPJ have argued that the sales tax should be eventually raised to 15 or 20 percent to cover swelling welfare costs being generated by the nation’s rapidly aging population.
“This (tax) issue should not be involved in ‘power game’ politics. We’d like to call on the (opposition parties) to hold discussions for the sake of the state and nation,” Noda told reporters Friday.
“This is an agenda that we cannot put off. We’d like to ask for sincere cooperation from the opposition parties,” Noda said.
Under the plan approved by the ruling Democratic Party of Japan Thursday, the government will first increase the 5 percent sales tax rate to 8 percent in April 2014, and then to 10 percent in October 2015.
Those tax hikes will be executed after the number of Diet seats and government personnel costs are slashed, the plan says.
Echoing Noda’s pledges, DPJ policy chief Seiji Maehara said “it would be desirable” for the DPJ to take measures to reduce the size of the legislature and government personnel costs when the Diet opens next month.
But Maehara also said “there might be something we cannot do” without the opposition, which controls the Upper House.
“We will make our utmost efforts to have coordinated discussions between the ruling and opposition parties.”
The government will maintain a single tax rate for all goods, instead of adopting a special lower rate for food products as advocated by some scholars and politicians.
But housing purchases may be treated as an exception, the plan says.
The government will also consider introducing income tax exemptions and benefit payments for low-income households.
The new measure will depend on a plan to assign universal ID numbers to each taxpayer.
Meanwhile, people with higher incomes would pay more as the government is set to raise maximum rates on the income and inheritance taxes.
The tax plan also includes a clause stipulating that the government is to shelve the tax hike when the economy is facing the risk of a significant slowdown.
Noda dropped an earlier plan in the face of strong opposition from within his party.
Given other members’ strong concerns about the tax hike’s potential impact on the economy, the government plans to add a clause to a related tax bill that would allow the government to suspend a tax hike to cope with “rapid economic changes.”
Noda, who heads the party, had instructed the DPJ’s executives to unite the party’s disparate opinions by the end of this year. Party panels discussing the reforms reached a compromise deal Thursday as the executives gave up on their initial proposal to raise the tax to 8 percent in October 2013 and 10 percent in April 2015.