The Yomiuri Shimbun (Apr. 30, 2012)
Help low-income earners with reduced tax rates for necessities
Comprehensive reform of the social security and tax systems is a top-priority issue that will influence the future course of the nation. Yet both the ruling and opposition parties have been acting too sluggishly over a bill related to the consumption tax hike.
Diet deliberations on the bill have been put off until after the Golden Week holiday period, and the bill will effectively be deliberated at a special committee from mid-May. As things stand now, it is unlikely the bill will be passed into law by June 21, the end of the current Diet session.
Amid these developments, there has at last emerged within the major opposition Liberal Democratic Party a movement to discuss a counterproposal to the government's bill. This should be highly praised as a constructive stance.
We want the LDP to work out the counterproposal, and debate it and the government's bill with the government.
LDP should make counterproposal
Under the counterproposal that has emerged within the LDP, the consumption tax rate would be raised in one step from the current 5 percent to 10 percent in April 2015.
The LDP's idea differs from the government's proposal in how the tax hike is to be implemented, with the latter planning to raise the rate to 8 percent in April 2014 and then to 10 percent in October 2015.
The LDP, which held power for many years, is responsible for the critical fiscal situation. The party appears to be tackling the task of putting the nation's fiscal house in order seriously, though belatedly.
The LDP also advocated the idea of raising the consumption tax to 10 percent as a campaign pledge during the House of Councillors election in 2010.
As the LDP's idea is in accord with the government's plan in terms of the eventual tax rate, there should be plenty of room for it to form a consensus with the government and the Democratic Party of Japan.
Prime Minister Yoshihiko Noda has repeatedly emphasized his determination to stake his political life on passage of the bill in the Diet.
Noda must exercise his leadership further by cooperating with DPJ leadership, including the party's Secretary General Azuma Koshiishi, to bring about talks on the issue between the ruling and opposition parties.
One focal issue in Diet deliberations will be how to reduce the financial burden on low-income earners if the tax rate is raised.
Sizable handouts problematic
The bill would raise the rate in two phases, and also contains additional measures to aid low-income earners.
When the tax rate is raised to 8 percent, a simple measure to grant cash benefits will be implemented. 税率を８％にする際、低所得者に現金を渡す「簡素な給付措置」を実施する。
Additionally, when the rate is raised to 10 percent, the government will introduce a Japanese version of the earned income tax credit, whereby the amount of tax people with low incomes owe will be reduced in accordance with their income, or they will receive a tax refund in cash.
It is said that the lower one's income, the heavier the burden of the consumption tax becomes.
Even if some measures are deemed necessary to lessen this burden, it is questionable that calls are growing within the DPJ to expand the scale of such steps, under the pretext of the simple benefit-granting step.
Worthy of note in this regard is the fact that the social security portion of the government's envisaged reforms of the social security and tax systems does include support measures worth 1.4 trillion yen for low-income earners.
Among them are reduction of nursing care insurance premiums and additional pension benefit payments for people in lower income brackets.
Taking this into account, the government must refrain from implementing yet another handout policy by bloating the amounts of the planned cash allowances and the scope of people eligible for them.
To put the EITC program into force, it is imperative for the government to establish a system that will give it a clear understanding of the income of each household.
Many experts are concerned, however, that even if the government employs a national numbering system to track incomes, it would be extremely difficult to have a completely accurate grasp of households' income from such sources as property holdings and financial asset.
In most European countries, where value-added taxes were put in place long before Japan's introduction of the consumption tax, the tax rates are markedly high at around 20 percent. However, they adopted reduced tax rate systems aimed at lowering rates for daily necessities such as food.
Even when a VAT rate is raised, the reduced tax rates for goods indispensable for daily life have mostly remained the same. This mechanism is well suited to the need that may arise in the future to raise taxes in a flexible way.
There are also many countries in which high importance has been placed on the culture of printed media and news organizations' contribution to the public good, so tax rates on such publications as newspapers and books have been kept at very low levels.
The tax rates for such items are zero in Britain, 2.1 percent in France and 4 percent in Italy, which experts say demonstrates that the tradition of "not levying tax on knowledge" has taken root in these nations.
Hold discussions immediately
Probably because Japan's consumption tax rate is substantially lower than VATs in Europe, there has so far been little discussion about the need for a system of reduced tax rates. The examples in Europe mentioned above are worth noting in this respect.
In a nationwide survey The Yomiuri Shimbun conducted earlier this month, 74 percent of respondents favored "introducing a reduced tax rate system when the consumption tax rate is raised."
It should be considered reasonable and proper that Noda said last week that his administration is ready to study the advisability of adopting a reduced tax rate system. Appearing on a TV program, the prime minister said, "I think there are a lot of proposals [for adoption of reduced tax rate system] from both the public and opposition parties, and I would like to have serious discussions on the matter."
Since the prime minister's remarks, the atmosphere has become more conducive to discussions on the advisability of adopting a reduced tax rate system.
Keiichi Ishii, chairman of New Komeito's Policy Research Council, said at a news conference recently: "This country may adopt a reduced tax rate system or an EITC formula, or both. It's important to clarify concrete specifics of these measures in a reliable way."
The LDP, for its part, has also been studying the wisdom of introducing a reduced tax rate system for daily commodities when the consumption rate is raised to 10 percent.
The government, however, has failed to incorporate creation of a reduced tax rate system into its bill, on such grounds as that doing so would make it difficult to secure necessary tax revenues, and that it would be difficult to distinguish between goods eligible for lower rates and those that are not.
The ruling and opposition parties are strongly urged to quickly hold in-depth discussions about what system the public would find realistic and intelligible.
(From The Yomiuri Shimbun, April 29, 2012)