Keidanren calls for raising consumption tax to 10% by FY 2011+

TOKYO, Sept. 13 Kyodo - The Japan Business Federation will call for increasing the consumption tax rate by 5 percentage points to 10 percent by fiscal 2011 and urge the state to fund all budget outlays for the state-run basic pension plan with tax revenues, the
group's draft policy recommendation showed Saturday.
The federation, better known as Nippon Keidanren, will also ask the government
to implement income tax cuts worth about 2.5 trillion yen over a period of few
years to cushion the negative effects for low-income and middle-income
households from the proposed sales tax hike, the draft recommendation said.
The nation's most influential business lobby will announce the recommendations
after the launch of a new Cabinet, following the Sept. 22 Liberal Democratic
Party presidential election to choose the successor to outgoing Prime Minister
Yasuo Fukuda.
Despite the request for a consumption tax rate hike, Nippon Keidanren wants the
government to maintain the 5 percent tax rate for food and other daily
necessities to minimize the fiscal damage to households.
Because of the slowdown in the Japanese economy, the lobby wants the government
to raise the tax in fiscal 2010 or 2011, rather than in fiscal 2009, which will
begin in April 2009, the draft showed.
Nippon Keidanren Chairman Fujio Mitarai had said the consumption tax rate
should be raised to 10 percent by fiscal 2014.
But the lobby has decided to push forward the proposed tax increase to meet the
government's goal of achieving a primary balance budget surplus in fiscal 2011,
while funding snowballing social security outlays sparked by the rapid aging of
the population.
A primary balance surplus will be realized when outlays other than
debt-servicing costs are covered by revenues without relying on fresh debt
issuance.
Social security costs are expected to grow sharply in the coming years, partly
due to the scheduled increase in state burden in the basic pension plan from
the current one-third to 50 percent in fiscal 2009.
Under the current system, the government annually sets aside 7.4 trillion yen
to fund one-third of annual outlays, with the remainder financed by pension
premiums collected from taxpayers.
According to the draft, Nippon Keidanren will ask the government to extend
large-scale tax breaks for child-rearing households in fiscal 2009, as part of
efforts to reverse the declining birthrate.
The lobby will not propose the introduction of an environmental tax to fight
global warming because it doubts the effectiveness of such a measure, the draft
said.