The Japanese Diet (Parliament) approved today a Bill that would enable the Government to raise income-tax for up to 25 years to secure funds for reconstruction work following the March earthquake and tsunami.
The Bill, approved last week by the House of Representatives, was voted in favour by the House of Councillors, with Prime Minister Mr Yoshihiko Noda’s ruling coalition obtaining the cooperation of major opposition parties that dominate the upper house.
The Diet has already enacted the Government’s 12 trillion yen third extra budget for the current fiscal year through March to cover mainly the additional costs for rebuilding the areas in northeastern Japan that were devastated by the March 11 disasters, which also triggered the crisis at the Fukushima Daiichi nuclear power plant.
The tax hikes, some of which will start next April, will come as Mr Noda wants to use the money to service special government bonds.
He has refused to issue new debt without ensuring that the Government has sufficient funds to redeem it to improve the country’s fiscal health, the worst among major developed countries.
Japan’s gross Government debt is projected to approach 230 per cent of its gross domestic product in 2013, pushing public finances further into “uncharted territory”, said a report released on Monday by the Paris-based Organisation for Economic Cooperation and Development.
The tax increase will help gather funds that the Government needs to intensely implement reconstruction programmes over the next five years.
The Government plans to increase personal income-tax for 25 years from January 2013, despite concerns by economists and some lawmakers that this would hurt the already fragile consumer confidence in Japan.
Among other taxes to be raised, the Government will first cut the corporate tax rate and then raise it for three years from April next year in a way so that the new rate would not top the previous one.
The move will effectively support Japanese companies as Mr Noda wants to give them an incentive to remain operating in the country at a time when more firms have been lured to shift their production abroad, given the stronger yen, which has made Japanese exports more expensive than those from its Asian rivals.
The approved Bill also stipulates that the Government sell some of its assets to secure non-tax revenues for reconstruction work, including its stake in Japan Tobacco Inc.