Japanese Finance Minister Naoto Kan said he was open to debating sales tax reform, suggesting the government may consider raising the tax to help fund its spending programmes focused on supporting households. Many analysts say the government will have no choice but to raise the consumption tax, now at 5 percent, to make up for falling overall tax revenues and a likely rise in welfare spending due to the country's ageing population.
Prime Minister Yukio Hatoyama, who took office in September after a landslide election victory, reiterated on Monday his pledge not to raise the politically sensitive tax until the next general election, which must be held by late 2013. "I have no recollection of deciding that we wouldn't debate the sales tax under the Hatoyama cabinet," Kan, who is also deputy prime minister, told lawmakers in parliament on Monday. "It would be unnatural to debate tax reform while excluding the consumption tax."
But Kan added that the government would ask voters for their opinion before embarking on such a big tax reform, suggesting a sales tax hike would not precede the next general election. "I said during the general election (last year) that we would not raise the sales tax while in power for the next four years, and that is my wish," Hatoyama told reporters later on Monday. "Finance Minister Kan understands the need to fulfil this."
The government is expected to fund less than half of its budget for the fiscal year starting in April with tax revenue, which is set to fall behind new debt borrowing for the first time since World War Two. Kan said the previous day that the government would start discussing tax reform in March, in the clearest sign yet that it will consider a sales tax hike to deal with a yawning fiscal gap.
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