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Monday March 27, 1:34 PMCORRECTED: 22% consumption tax needed if Japan goes without outlay cut: panel(Kyodo) _ A consumption tax hike to 22 percent from the current 5 percent would be needed in fiscal 2015 if Japan seeks to secure a sound balance between its tax revenues and outlays without a major outlay cut, an advisory panel to the finance minister said Monday.If Japan opts to put its deficit-ridden fiscal house in order without any tax hike, it would have to slash its general-account expenditures by 26.9 trillion yen in fiscal 2015, the Fiscal System Council said in a report on the long-term outlook on the nation's finances. The panel recommended that Japan take a middle course between the dependence only on a tax hike and resorting only to a drastic expenditure cut, saying, "Conducting a sharp outlay cut would undermine the people's daily lives and the government's functions." The panel called on the government to conduct both the consumption tax hike and fiscal outlay cuts by limiting their scopes to those of a milder magnitude than assumed under the two extreme scenarios. "Reforms need to be implemented on both the revenue and expenditure fronts," according to the report. Finance Minister Sadakazu Tanigaki, who received the report, plans to submit it to a meeting on Wednesday of the Council on Economic and Fiscal Policy, led by Prime Minister Junichiro Koizumi. The panel devised the recommendations on policy responses that would be necessary if Japan is to make a primary balance -- annual tax revenues minus outlays other than debt-servicing costs -- generate a surplus in fiscal 2011, and to hike the balance's surplus to a level equal to 1.5 percent of its gross domestic product in fiscal 2015. Other presumptions for the trial calculations are that the nation's nominal GDP, a factor that influences tax revenues and social security-related contributions from taxpayers, will average 3 percent and that long-term interest rates, a factor that affects bond-servicing costs, will average 4 percent during the period. As a result, the panel said, if Japan opts to straighten up its fiscal house without reducing tax allocations to local governments, it would have to boost its tax revenues by 45 percent, making it necessary to hike the consumption tax to 22 percent, the panel cautioned. If Japan chooses this course of action, it would have to jack up the consumption tax to 15 percent in fiscal 2011 in the run-up to the fiscal 2015 hike to 22 percent. The government would have to slash by 68 percent the general account budget's discretionary outlays for policy steps -- all steps other than social security outlays, tax allocations to local governments, bond-servicing costs and civil servants' wages -- if it is to have the envisioned 1.5 percent surplus without conducting any tax raise, it also said. |
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