Major tax hike expected as Japan rebuilds

JAPANESE consumers may have to help foot the reconstruction bill after last month’s earthquake and tsunami caused $300 billion (€210bn) of damage, further burdening the hugely indebted economy.

The government is considering raising tax by 3% to 8% when the new fiscal year starts next April

It would be the first increase since 1997, though a sales tax hike had been the subject of fierce political debate, even before the earthquake struck, as one way for Japan to get itself out of massive debts.

“It was clear even before this disaster and the need to secure funds for reconstruction that to ensure a sustainable fiscal situation, some sort of reform of spending and revenues was necessary,” said internal affairs minister Yoshiro Katayama.

“The debate over the fiscal situation is not something that began with this disaster,” he said.

The government hopes to avoid issuing new bonds to fund an initial emergency budget, expected to be worth about $48bn, due to be compiled this month.

But bond issuance is likely for any subsequent budgets, which will only make it harder for Japan to rein in its debt, already running at twice the size of the $5 trillion economy.

The mood among consumers about job prospects and incomes darkened after the quake, a survey showed.

However, the Asian Development Bank’s chief economist said he saw little sign of serious negative impact on other Asian economies.

The government says it has not yet decided how to fund the rebuilding cost but was reported to have ruled out raising income and corporate taxes.

“I am aware that the Democratic Party is considering various methods, including this [tax rise]. But the government is not considering any specific funding methods at this stage,” government spokesman Yukio Edano said.

Katsuya Okada, secretary-general of the ruling Democratic Party has said taxes would have to rise in order to repay new government bonds needed to pay for reconstruction.

A poll by the Nikkei business daily showed about 70% of Japanese voters would support a tax hike, but want unpopular prime minister Naoto Kan to be replaced.

As well as trying to deal with the consequences of the quake and tsunami, which killed at least 13,000 and left tens of thousands homeless, Japan is struggling to control the Fukushima Daiichi nuclear power plant that began leaking radiation when it was nearly destroyed by the natural disasters.

Reuters