Yosano Says Japan Needs to Double Sales Tax to 10% by 2015

Yosano Says Japan Needs to Double Sales Tax to 10% by 2015

By Mayumi Otsuma

Dec. 21 (Bloomberg) -- Japan needs to double its sale tax to 10 percent by 2015 to pay for pension and welfare needs, Economic and Fiscal Policy Minister Kaoru Yosano said.

The government should begin increasing the tax in 2011 and raise it to 10 percent in increments to avoid damaging economic growth, said Yosano, who has warned against the country’s swelling budget deficit and called for higher sales taxes.

“If the sales tax is raised by 5 percentage points all at once in 2011, it would be too great a shock to economic growth,” Yosano said on TV Asahi today. “It’s obvious Japan won’t be able to sustain pension, medical and nursing care programs without lifting the tax to that level.”

Prime Minister Taro Aso, facing a plunge in approval ratings, has unveiled a series of economic stimulus plans since October to prop up a moribund economy. The government yesterday released a budget proposal that will increase spending next year to a record 88.5 trillion yen ($991 billion) and expand the industrialized world’s largest deficit.

Aso’s approval rating fell to 16.7 percent from 38.8 percent last month, Jiji Press reported last week.

Japan’s budget deficit will widen to the most in four years. The so-called primary deficit, spending in excess of revenue excluding bond sales and interest payments, will balloon to 13.1 trillion yen from this year’s 5.2 trillion yen, according to the Finance Ministry’s estimate.

The government tries to pay for stimulus programs “by borrowing from wherever possible,” Yosano said, adding that this “passes the fiscal burden to future generations.” Revenue from a sales tax increase should go only to finance pension and social welfare spending, he said.

Timing Increase

Yosano said the sales tax should be raised when the economy returns to an expansionary path, although not waiting until the growth pace peaks.

Yosano welcomed the Bank of Japan’s interest rate cut and its plans to start buying commercial paper and more bonds from lenders, decided on Dec. 19.

“The Bank of Japan has begun acting like a warrior instead of part of the nobility,” Yosano said. “It’s exhausting every possible measure to counter the economic and financial crises, to the extent that it may dare to go beyond its mandate as a central bank.”

The central bank cut its benchmark overnight lending rate to 0.1 percent from 0.3 percent. The bank also said it will buy commercial paper, or short-term corporate securities, from lenders outright. Governor Masaaki Shirakawa said the plan is an “exceptional step” because the bank will take on each company’s credit risk.

To contact the reporter on this story: Mayumi Otsuma in Tokyo at motsuma@bloomberg.net

Last Updated: December 21, 2008 00:32 EST