Japan premier announces sales tax hike plan

Japan's prime minister told parliament on Tuesday he will move to double sales tax to 10 percent, saying the future of the world's third-largest economy depends on tackling its massive public debt. Yoshihiko Noda has staked his premiership on the issue and in his policy speech opening the new session of the Diet said he would submit legislation by the end of March that will ramp up the cost of everything from rice to Rolexes. Less than five months into the job, Noda is trying to sell the deeply unpopular rise to a sceptical public, and avoid becoming the sixth prime minister in as many years to disappear beneath the waves of Japan's viciously factional politics. Noda said the country has "no time to spare" in chopping its fiscal burden. "It's impossible for young people to believe that things will get better tomorrow in a society where debts resting on future generations continue growing," he said. "It is not too much to say that the revival of hope of the entire society depends on the success of this combined reform." With burgeoning pension and social security costs in a country where the population is greying and shrinking, only around 40 percent of what the government spends is currently made up from taxes. The rest is financed from borrowing, leaving debt at more than double the country's GDP, an eyewatering ratio that dwarfs troubled Greece and will only grow unless more tax is raised, experts warn. Noda's proposals could raise tax receipts by roughly 10 trillion yen ($130 billion), the first step towards Tokyo weaning itself off borrowing. The government had intended to achieve a primary balance surplus by 2020, but now admits it is unlikely to hit that target. The plan would see consumption taxes rise to 8.0 percent in April 2014 and to 10 percent in October 2015 "on condition that the economy is going to pick up," Noda said. The country's March 11 earthquake and tsunami had brought a series of pressing issues to bear, which politicians had a "responsibility" to address, including reform of the tax and social welfare systems, he added. "This year must be the initial year of Japan's revival. Above all, I aim to break away from a politics that is incapable of decision," Noda said. With the world's finances in dire straits, Japan urgently had to get its own fiscal house in order if it was not to fall victim to "rampaging" financial markets like some European countries have, the premier told lawmakers. "We have no time to spare for this combined reform in terms of the need for having strong fiscal structure that will not be tossed around by the power of the financial markets," he said. His proposals have won support from major media, businesses, international organisations and think tanks. But opinion polls consistently show he has a long way to go to persuade the public of the merits of their coughing up more in an economy struggling to keep its head above the water. A poll this month showed 79.5 percent of Japanese were opposed to the tax plan unless the government moves to significantly cut its own costs. The premier must underscore the seriousness of Japan's predicament to voters, and stress plans to cut government salaries and the size of Japan's bureaucracy, said Tomoaki Iwai, politics professor at Nihon University. "Only the tax hike has drawn attention," said Iwai. "If he could show that politics is also doing its part to feel the pain and discuss the merits of the policy package, he could lay a case for people to consider." Noda is also facing an opposition party that smells blood, with the Liberal Democratic Party reversing its position and now refusing to support the tax hikes, demanding the premier go to the polls to seek a mandate for the rise. "I sincerely hope the opposition (will) join negotiations on draft plans for the sake of all of our people and the future of our country," Noda said. Noda's speech came as the Bank of Japan said it believed the economy would shrink 0.4 percent in the year to March 31, reversing an earlier prediction of a 0.3 percent rise in GDP. The central bank said the economy would grow in fiscal 2012, but only by 2 percent, less than the 2.2 percent it had originally forecast, amid a "slowdown in overseas economies and the appreciation of the yen."