A tax system for an aging society

高齢化社会の税制

Perhaps the government's tax advisers deserve commendation for their courage to propose such a painful prescription at a time of near-zero economic growth. The proposal is a candid admission of the glaring gap in the national budget — a gap so wide that it cannot be closed without tax increases.

Higher taxes are unwelcome to taxpayers. But tax revenues take up only half of the ¥82 trillion budget; the other half relies on debt issues. Spending reform is necessary but it is not the most effective way of bridging the wide deficit.

The budget crisis is a reminder that taxes and politics are intertwined. The implication is that the deficit would not have ballooned as it has if lawmakers had acted sooner to revamp the system. But if politicians are to blame, voters who elected them must share the blame. That's why we should look squarely at the panel's recommendations.

The tax burden in Japan is one of the lowest among industrialized countries. National and local taxes combined account for 21 percent of income, compared with 27 percent in the United States, 41 percent in Britain, 31 percent in Germany and 40 percent in France. The overall burden on people, including social security charges, is low by international standards.

As the report points out, Japan has avoided increasing the tax burden and has depended heavily on borrowing, passing the bill to future generations. However, any sharp tax increase will trigger a public backlash.

The most controversial of the recommendations is that the consumption tax rate be raised to 10 percent or more from the present 5 percent. The value-added tax brings in nearly ¥10 trillion a year. The panel notes that similar levies in major European countries carry double-digit rates.

The concept of the consumption tax, introduced in 1989, is widely accepted for two reasons. The first is the need to increase the weight of indirect taxes, as opposed to direct taxes. The second rationale is that the value-added tax spreads the tax burden broadly and thinly among consumers.

The question is how much further the rate should or can be increased. An across-the-board increase would hit hard low-income consumers. One option would be to set a lower rate for daily essentials. Introducing the so-called invoice system seems necessary to close loopholes in tax collection. The basic requirement for any future tax increase is fairness.

Another question is when to boost the levy. The economic situation is a key factor. Tax hikes in time of economic stagnation would be a recipe for fiscal disaster. Prime Minister Koizumi says he will not change the 5 percent rate while in office. It is easy to imagine, though, that he is not only thinking in economic terms but is keeping an eye on his political future.

In September, his Liberal-Democratic Party will hold a leadership election. If he is re-elected, he will stay at the helm for another two years. In the meantime, he can try to cut non-essential spending and pave the way for a tax hike. However, with the revenue shortfall reaching critical proportions, an early rise in the consumption tax seems inevitable.

The Tax Commission proposes that elderly people in higher income brackets should assume a greater tax burden. This would involve reducing income tax deductions for pensioners. Higher levies for elderly taxpayers can be justified from the standpoint of "intergenerational" fairness.

The panel, however, comes up short in an important area: deflation. Falling prices are holding down nominal rates of GDP growth and natural increases in tax revenue. That is another reason tax increases are needed. The report would have been more persuasive had it emphasized the deflationary impact on the economy.

The Japan Times Weekly
June 28, 2003
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      国民にとって、消費税引き上げは歓迎できない。しかし82兆円の国家予算の半分は税収、残りの半分は赤字国債発行で調達している現状で、支出削減だけでは財政赤字は解消できない。

      日本の税負担は先進国中最低の水準にある。国税、地方税の税収は国庫収入の21%で、米、英、独、仏などに比べ低い。

      答申で最大の問題は、現在5％の消費税率を2桁に引き上げる案である。

      1989年に導入された消費税は、間接税の比重を増やすこと、国民の税負担を「広くうすく」することで受け入れられている。

      問題は、消費税率引き上げ幅と、増税の時期だ。不況時に増税すれば大変なことになる。小泉首相は、在任中は消費税増税を行わないと明言している。

      小泉氏が9月の自民党総裁選で再選されれば、その後2年間政権の座に留まる。その間、小泉氏は重要でない支出を削減し、増税への道を探るだろうが、財政赤字が危機的状況になれば増税は不可避となる。

      税調答申は、高所得の高齢者の税負担を増やすべきだとしている。そのためには公的年金等の所得控除を縮小することになる。これは「世代間の税格差是正」の観点から当然といえる。答申内容は、デフレ対策が不足している。価格下落は名目経済成長率と税収の自然増を低下させており、それが増税の理由になる。デフレの影響を強調すれば、答申は説得力を増しただろう。