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| July 19, 2011 |
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| Reform of Taxation & Social Services in a Single Package |
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The Social Security Reform Evaluation Headquarters (headed by Premier Kan Naoto) decided on June 30 to hike the consumption tax rate to 10%. If the government intends to allocate revenues deriving from the consumption tax to pay for all the expenses for social security, the rate must be eventually raised to as high as a level of 20%. If this policy is taken, poverty will prevail further to widen gaps between the rich and the poor. The New Socialist Party (NSP) is adamantly against this initiative.
GOVERNMENT PLANS TO SURGE RATE OF CONSUMPTION TAX TO REFORM SOCIAL SERVICES
The recent decision means that the government links taxation to a reform of social service programs.
Prime Minister Kan suggested, immediately after his inauguration, to raise the tax rate to 10%, which, consequently, led to a defeat of the ruling Democratic Party of Japan (DPJ) in the Upper House elections held in 2010 July. The DPJ government has taken afterwards a policy to use financial sources from the consumption tax for social security and announced an overall reform plan, suggesting its financial scale.
Premier Kan told in his policy speech last October about a package to combine reforms of social programs with taxation, proposed to set up the aforementioned body, the Social Security and Taxation Reform Evaluation Headquarters and appointed last January Yosano Kaoru as Minister in charge of the affairs.
Tax Rate Goes up to 20% Mark
Media reported on the 10% surge sensationally, but the coverage was not correct. The panel concluded as follows;
(1) the consumption tax, basically, pertains to a specific purpose to cover public services,
(2) a separated, independent accounting system should be employed to carry out the policy in the legal context and accounting practice,
(3) the tax rate will gradually go up to 10% by the middle of the decade of 2010 to ensure a necessary fund to launch reforms on public services for the time being,
(4) revenue from the consumption tax will constitute the major source in the future to cover the entire expenditure needed to pay for social benefits and for this purpose a stable fund should be established,
(5) lawmakers will be reduced in number and wages of public workers will be decreased in the reforms to cut wastes, and etc.
In the said decision the 10% rate is specified as provisional. This clearly indicates a direction to use the consumption tax to cover expenditure for public services. The government arranges legal procedures and applies a new accounting system. A mechanism is concealed to raise the tax rate up to the 20% mark.
Intensive Focus on Public Services
The decision of the Premier's panel implies an idea of 'intermediate-level and highly efficient' public services in the reform process. 'Intermediate-level' means to maintain the current system of public services basically and 'highly efficient' does to rationalize the existing benefits and raise efficiency in providing services.
In the policy included are: (1) a reduction of the average duration of hospitalization and a decrease in number of the elders eligible to the Elderly Care Program, (2) integration of children's day care centers and kindergartens and urge private businesses to enter this sector, (3) imposition of a certain fee on outpatients, and (4) a review to change the commencement of pension payment to the age of 70-year-old. The government attempts to reduce the sums of benefit payment, which as a result deteriorates safety of livelihood.
Nevertheless, the business circle enhances today criticisms that further efficiency is sought for in the health insurance system, proposing to remove eligibility from patients of slight cold and those elderly who need a low level of help. The health insurance programs will be made worsened.
Poverty-Stricken with Gaps
The consumption tax was introduced in 1989 as one of the neo-liberal package which aims to deregulate the maximum levels of imposition on the income and incorporate taxes as well as to remove classification grades of tax payment. The tax has typical characteristics: (1) imposing on the minimum level expenditure to survive, (2) exposing the poorer to the heavier burden, or affecting adversely on the income. These are fatal defects. Furthermore, the introduction of consumption tax has (3) forced smaller-and-mini businesses to fail to pay and be bankrupted as they cannot afford to put the taxed portion on sales prices. The rule of the consumption tax is unconstitutional, as Constitution advocates the progressive taxation principle. The New Socialist Party is against the policy to use revenue from the consumption tax to cover public services and to recover the state's finance.
The NSP adamantly opposes increment of consumption tax rate as it widens gaps to aggravate poverty. The party is determined to struggle to change the unfair tax system and abolish the consumption tax.
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