Japan wants to double national sales tax to fix deficit
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Jeff Horwich: Japan’s Nikkei index ended the day down almost 1 percent. The country faces a big ol’ budget deficit. As part of the solution, the government is pushing a plan to double the national sales tax — from 5 percent to 10. The BBC’s Mariko Oi is in Tokyo. Mariko, hello.
Mariko Oi: Hello.
Horwich: Why does the government say that it needs this extra revenue?
Oi: Well as you know, Japan has a huge public debt. It’s already twice the size of the country’s economy, which is worth $5 trillion — so you can imagine how huge that is. The prime minister has been saying that he really needs to raise the sales tax in order to tackle that debt. Also, the government will face increasing welfare costs because the population here is fast aging, so that’s partly why the government is very keen to push this bill through.
Horwich: I’m sure there’s some grumbling about this. On paper the personal tax burden of the Japanese looks a lot like the typical American’s actually. How badly do the Japanese think they are taxed?
Oi: The sales tax here is at the moment 5 percent, which I should say is one of the lowest among developed countries. This move has been extremely unpopular. A few leaders had actually lost the elections as a result of it. But Prime Minister Noda, he seems very, very determined. I mean, he has practically staked his career to raise this tax. It has only passed the lower house of parliament and it still has to go through the upper house of parliament, but it is a major step.
Horwich: Some tax economists would say that once a sales tax gets to around 10 percent, cheating starts to become a real problem. Do you think it will become a problem in Japan?
Oi: I think I would be quite surprise, but there have been a lot critics who say that the tax at that level will start to affect consumer spending. Remember, the country’s economy has not been really growing for nearly two decades, and of course we had that huge earthquake last year. So the economy has finally, slowly started to recover. But critics say that this tax could potentially affect people’s appetite to shop, so that wouldn’t be too positive for the country’s economy.
Horwich: Mariko Oi with The BBC, thank you very much.
Oi: Thank you.
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