No Consumption Tax Raise Without Real Reform

The Cabinet decided on February 17, 2012 that the consumption tax will be raised according to the principles that the government and opposition parties drafted in January. The aim is to reform the nation’s finances for the social security system. CUJ submitted the following letter to Prime Minister Noda on February 16, demanding a number of improvements to the proposal.

Prime Minister Noda Yoshihiko
February 16, 2012

Please reexamine the increase of the consumption tax rate

CUJ strongly requests that the government’s policy of “first raising the consumption tax” should be fundamentally reexamined.

According to the proposed reform bill, the consumption tax will gradually be raised to 8% From April 4, 2014 and to 10% from October 1, 2015. The aim is to ensure a stable source of income for the social security system and at the same time achieve healthier public finances.

The plan is to obtain people’s understanding by regarding the raise of the consumption tax as a tax that is earmarked for social security. The four main areas of expenditures are the costs for the pension system, health care & medical treatment, social security, and the decrease in the birthrate. Although this may be carried out, we suspect that the true aim of the raising of the consumption tax rate is to use the funds as a stopgap measure to deal with the huge budget deficit.

While calling it “one reform,” a concrete plan for substantial social security has not been presented. Rather, we are faced with cuts in the welfare system. The plan includes better pensions for low income earners, and mitigation measures such as nursing-care insurance. Instead, we are hearing about a reduction of pension benefits for the elderly and an increase in the burden of pension payments.

Primarily, taxes have the function of re-distribution of wealth in society while also being the funds for the nation’s finances. However, the measures against the adverse effects of taxation are very insufficient in this bill.

In the case of consumption taxation, the people with lower incomes are spending a relatively larger proportion of the income on items such as food. The higher the rate, the larger their burden will become. This problem has been discussed since the consumption tax was first introduced. We maintain that having the same tax rate on all goods and services is a kind of preferential treatment for people with high incomes.

This does not achieve the function of redistributing wealth, and will instead greatly erode the taxation base as the burden on people with low incomes will increase. In the case of value-added taxes, such as in many European countries, the rates vary on different goods, and in some cases, there are zero rates for daily necessities. Through such policies the burden on people with low incomes can be reduced.

In addition, the government is going ahead with the plan to introduce a national identification number system from 2015. This system was initially proposed by the old LDP government and opposition to its introduction was a part of the Democratic Party’s election promises in 2010. We have identified a number of problems with this, including privacy issues that could be especially severe for low income earners.

It is obvious that this is not a tax for the benefit of consumers, but a way to avoid introducing higher taxes on corporations. Compared to the tax systems of the US and European countries, it also places a higher burden on small- and medium-sized companies.

Rather than actually leading to a reform, the proposal will be a type of tax increase that is just a stopgap measure to deal with the budget deficit, with the result that this “one reform” will cause a lot of suffering for low income earners.

We urge the government to first reexamine the annual expenditures and reduce the fiscal deficit, before raising the tax rates. Below is a list of examples of wasteful projects and expenditures that should be cancelled and reduced:

1) Cancel the Yamba Dam project in Gunma prefecture, which will flood a large area an serves no real purpose as there is no water shortage.

2) Reduce the dependency on nuclear power by making large cuts in the budget for nuclear projects, such as the Monju fast breeding reactor in Fukui prefecture.

3) Stop unnecessary and dangerous vaccination schemes.

4) Stop funding medical examinations and superfluous medical treatment that only makes the tax-exempt medical institutions richer.

5) Stop the preferential treatment of the housing industry that will go through a boom before the new consumption tax rates are introduced, as people rush to buy homes.

6) Reduce the annual expenditures and political-party-subsidies for Members of Parliament, that are 5 times as high as in the US and European countries.

Consumers Union of Japan
Amagasa Keisuke
Koga Masako
Mashimo Toshiki
Yamaura Yasuaki