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Rare tax deal in Japan

Ian JohnsonJune 15, 2012

A rare political deal to help trim Japan's massive public debt has been reached between the governing Democrats and the opposition Liberals. They agreed to double the sales tax after years of flip-flop governments.

https://p.dw.com/p/15GCE
A Japanese flag flutters atop the Bank of Japan headquarters
Image: Reuters

Prime Minister Yoshihiko Noda is expected to ask parliament to vote on the intended tax raise next week in the deal, which resulted from weeks of cross-party negotiations. The talks were also aimed at social welfare reform.

Japan has the world's fastest ageing population in demographic terms, saddling it with swelling medical and pension bills.

Officials for both Noda's Democratic Party of Japan (DPJ) and the main opposition Liberal Democratic Party (LDP) said sales tax would jump from the current five percent to 10 percent, with cushioning for those on low incomes.

Noda listens to a reporter's question while standing at a pult. In the background, a Japanese flag.
It was a breakthrough for Japanese Premier NodaImage: dapd

A gradual rise to 15 percent had been recommended by the International Monetary Fund (IMF) to help reign in Japan's public debt. It amounts to about 220 percent of the country's GDP, the highest level of any advanced economy.

Opponents of the tax rise, including some parliamentarians within Noda's own DPJ, say any increase in household bills would derail Japan's fragile economic recovery. Lacking growth prospects, firms have curtailed investments in capital and jobs.

Reports from Tokyo say Noda has yet to convince doubters within his party, while opposition LDP elder Kozo Watanabe said his party would endorse the tax rise.

"I think there may be a fair number of defectors, but the LDP will agree, so it is meaningless," said Watanabe.

Japan major player in eurozone

Ahead of next week's G20 summit in Mexico, Japanese Finance Minister Jun Azumi said his country would be sending Europe a "strong message" in its attempts to sort out its debt crisis.

Japan is a major exporter to Europe and has been a sizeable purchaser of eurozone bailout bonds. But investor flight from the euro has helped push up the value of the Japanese yen, making Japanese goods more expensive to outside buyers.

Japan's economy has been plagued for years by deflation during a string of governments. That has been compounded by costs from the March 2011 earthquake and subsequent tsunami that unleashed the Fukushima nuclear disaster.

On Friday, the Bank of Japan (BoJ) held key interest rates at between zero and 0.1 percent, although some Japanese lawmakers had called for kickstart incentives. Last week, the BoJ said the eurozone crisis was the biggest factor threatening Japan's fragile economy.

ipj/ncy (AFP, Reuters)