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No prospects in sight for covering revenue shortfall following introduction of reduced tax rate

  • 2015-12-14 15:00:00
  • , Mainichi
  • Translation

(Mainichi: December 13, 2015 – p. 7)

 

 The government and ruling parties need to come up with fiscal resources to cover a revenue shortfall of as much as 1 trillion yen by the time the reduced tax rate is introduced in April 2017. As the ruling parties have agreed to introduce the reduced tax rate before securing fiscal resources, it will not be easy to produce the necessary funds amid the current fiscal woes.

 

 On Dec. 12, the ruling Liberal Democratic Party and its junior coalition partner Komeito agreed on documents that stipulate the policy of upholding the government’s fiscal reconstruction plan, which covers through fiscal 2020, and securing “stable permanent fiscal resources” by the end of fiscal 2016. According the Ministry of Finance (MOF), the country will lose 1 trillion yen of the 5.6 trillion yen in expected revenue from the tax rate increase.

 

 During their discussions on the introduction of reduced tax rates, the government and ruling coalition were only able to secure 400 billion yen by giving up on the “comprehensive combined system,” which includes measures to help low-income earners. This is because the government premises the consumption tax increase on using the revenue gained for the “comprehensive reform of the taxation and social security systems.”

 

 However, that premise has collapsed because the government now needs to come up with 1 trillion yen in fiscal resources. With regard to the remaining shortfall of 600 billion yen, the idea of raising the tobacco tax by 3 yen per cigarette has emerged. Although the idea could produce about 300 billion yen, there is a cautious view in the LDP out of consideration for farmers growing leaf tobacco.

 

 In connection with the fiscal reconstruction plan, the government has set a target of achieving a primary surplus by fiscal 2020 by making an interim appraisal on the level of achievement. If tax revenue drops significantly as a result of the reduced tax rates, the government will be forced to review the plan.

 

 In light of the interim appraisal on the level of achievement in fiscal 2018 of the fiscal reconstruction plan, the LDP-Komeito agreement calls for incorporating into a tax reform bill in fiscal 2016 a policy on examining the taxation, including consumption tax, and social security systems. (Slightly abridged)

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