The Yomiuri Shimbun
Debate should not be entirely focused on the pros and cons of a tax increase. In-depth debate should be cultivated, keeping in mind the severe reality of the chronically low birth rate and aging population.
Unlike the income tax imposed mainly on working-age generations, the consumption tax is paid by a wider range of people, including elderly people after retirement. Revenue from that tax is less affected by economic fluctuations. That is why the consumption tax is called a stable financial resource to support the social security system.
No one is happy about tax increases. However, spending on medical care, pensions and nursing care continues to increase with the aging of the population, while the number of young people is decreasing. It is unreasonable to leave working-age generations alone to shoulder the burden. There is nothing to do but call on elderly people to bear a proportionate share of the burden.
In the upcoming House of Councillors election, the ruling parties insist on implementing the hike in the consumption tax rate to 10 percent as planned in October, while opposition parties are calling for the tax increase to be frozen or abandoned.
The tax rate hike is desirable unless the nation faces a critical economic situation. Efforts should be made to carefully explain to the public what the tax revenue will be used for, in a way they can accept. It also will be important to take all possible measures to shore up economic conditions.
This time, a reduced tax rate system will be introduced for the first time, which will maintain the rate of 8 percent for newspaper subscriptions and food and beverages, excluding alcoholic drinks and eating out at dining establishments. This kind of system is firmly established in Europe and other parts of the world. It is indispensable to implement the system smoothly.
Raising corporate tax risky
If the consumption tax rate further increases, the significance of the reduced tax rate system, which eases the financial burden on households, including those for elderly people and low-income earners, will be better felt by the people.
Prime Minister Shinzo Abe said there will be no need to raise the consumption tax rate above 10 percent for about 10 years to come. However, members of the baby-boom generation will be 75 or older in 2025 and the aging of population will peak in 2040. Debate on a consumption tax rate above 10 percent should not be blocked.
In 2012, three parties — the then ruling Democratic Party of Japan, and opposition parties the Liberal Democratic Party and Komeito — reached an accord on integrated social security and tax system reforms that set the path toward increasing the consumption tax rate to 10 percent.
Yukio Edano, the leader of the Constitutional Democratic Party of Japan and at that time a Cabinet member, said, “Ultimately the decision on the three-party agreement was wrong.” It is difficult to understand Edano saying that as if it were someone else’s problem.
Looking at companies’ accumulating internal reserves, opposition parties are insisting on a raise in the corporate tax rate, among other counterproposals to the consumption tax hike. This would also be problematic.
Foreign countries are tending to reduce corporate taxes these days. A raise in the corporate tax rate in Japan could lead to a decrease in the number of foreign companies coming to Japan and make domestic industries less competitive. The revenue from the corporate tax rapidly decreases in times of business slumps. Fiscal management relying on the corporate tax is risky.
It is hoped that discussions will be held on such measures as how to expand the tax system to lead to wage increases, rather than increasing the corporate tax rate.
(From The Yomiuri Shimbun, July 11, 2019