Japan must raise taxes, says Finance Minister

Japan’s finance minister has proposed a sales tax increase, due to take effect from 2014, in order to show the world that Japan is dedicated to lifting itself from its current financial difficulties.

Finance Minister Taro Aso suggested a 3 per cent sales tax hike next April, from five per cent to eight per cent, with a further two per cent increase to ten per cent in 2015. Aso strongly defended the idea, arguing that to delay the tax increase would be to negate the promises made by Japan to the G20 that it would solve its financial problems.

Prime Minister Shinzo Abe has not yet committed to the idea, showing concerns that such a move might weaken the Japanese economy. Abe has said that he will decide later this year whether or not to go ahead with the tax hike. However, foreseeing such opposition, Taro Aso also noted that any negative economic impact could be limited as much as possible by other governmental actions. Speaking of the tax increase, Aso said “We need to consider an extra budget. It’s better to moderate economic fluctuations from the tax hike.”

Japan’s economy has seen troubled times over the past few months, and despite a recent reduction in inflation and positive economic growth for the past three months, public debt in Japan is among the worst in the worlds’ developed nations.

Public debt in Japan currently stands at more than twice the size of its 500 trillion yen economy. Many see the sales tax hike as a major test for Abe’s government, who promised its people major fiscal reform.

However, many in the financial world fear the sales tax increase may have the opposite result to that predicted by Aso. Recent data revealed that Japan is currently the fastest-growing major economy in the world, and many believe that a sales tax would weaken Jpan’s economy, just as it looked to be on the verge of ending its past fifteen years of deflation and economic difficulty. Indeed, in its most recent quarterly economic report, the government confirmed a substantial increase in exports and consumer spending.

More data will need to be collected before the Prime Minister makes his final decision on the tax rise this coming autumn.

Sources include Japan Today, The Japan Daily Press

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