Japan ups sales tax to reduce debt

Japan’s ruling party compromised on a plan to double the sales tax by 2015 to help reduce the world’s largest public debt, delaying implementation by six months to help lawmakers meet a campaign pledge.

The proposal by Prime Minister Yoshihiko Noda would raise the sales tax from 5 percent to 8 percent in April 2014 and to 10 percent in October 2015. The agreement, reached late yesterday, must be approved by a government panel led by Finance Minister Jun Azumi before discussion with the opposition.

“Unless we send a message that we’ll maintain social security and fiscal discipline, we could find ourselves in a crisis,” Noda told party members.

An aging population and two decades of low growth have saddled Japan with debt projected to exceed 1 quadrillion yen ($13 trillion) in the current fiscal year. Standard & Poor’s said last month it was considering lowering the country’s sovereign rating, already cut in January to AA-, as Noda’s government makes little progress at tackling the burden.

Noda’s push for the levy as he struggles to tackle the debt may end up hurting his public image, said Koji Nakano, an associate professor of political science at Sophia University in Tokyo. Nine members of Noda’s Democratic Party of Japan submitted resignations two days ago, citing the party’s failure to keep campaign promises, acting Secretary-General Shinji Tarutoko told reporters. 

(Bloomberg)

“The public doesn’t understand why Noda is trying to force through the tax increase against the party’s campaign pledge,” Nakano said by telephone before the compromise. “There will be more defectors next year.”

A former DPJ prime minister said in 2009 that the party wouldn’t raise the sales tax during the current lower house term, which ends in August 2013.

“The party has started collapsing, and Noda’s ground is breaking down,” opposition Liberal Democratic Party Secretary- General Sadakazu Tanigaki told reporters on Dec. 28.

Noda’s approval rating dropped to 31 percent from 40 percent last month, according to an Asahi newspaper telephone survey of 1,655 voters taken Dec. 10-11.

“It was an historic day,” party tax panel head Hirohisa Fujii told reporters after the agreement. “Prime Minister Noda has made enormous efforts to unify the party and hasn’t shifted his stance at all.”