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Japanese Panel Calls for $146 Billion Tax Increase

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SEPTEMBER 18, 2011, 1:38 P.M. ET

Japanese Panel Calls for $146 Billion Tax Increase


TOKYO—A Japanese government panel on Friday called for temporary tax increases to bring in ¥11.2 trillion (about $146 billion) over a period of up to 10 years to fund post-disaster reconstruction and prevent public finances from worsening.

Charged with coming up with ways to boost government revenue in the face of huge spending requirements after the March 11 earthquake, the Tax Commission also recommended raising ¥5 trillion through non-tax sources, including the sale of government-held shares in Japan Tobacco Inc.

The commission offered three tax-increase options, to be in effect for five to 10 years: a mixture of higher income, corporate and regional taxes; that mix plus higher taxes on specific items such as alcohol or cigarettes; and an increase in the country’s sales tax from the current 5%. But Prime Minister Yoshihiko Noda quickly ruled out the third option, according to Finance Minister Jun Azumi.

Of the projected tax revenue, ¥8 trillion would be used for reconstruction and ¥2.5 trillion for pension programs, among other uses.

Mr. Noda doesn’t want reconstruction spending—estimated at roughly ¥13 trillion over five years—to add to the nation’s public debt, already twice annual economic output.

The government plans to sell bonds to raise much of the ¥13 trillion, then gradually pay back the borrowed money using revenue from the tax increases.

But there is uncertainty over the extent to which the ruling party’s final tax policies will reflect Friday’s proposals. Worried about Japan’s slowing economic recovery, many Democratic Party of Japan lawmakers are opposed to tax increases, though polls suggest many voters consider higher taxes an acceptable way to fund reconstruction.

More importantly, opposition parties, whose backing is vital in getting tax bills through Japan’s split parliament, are growing more combative, stoking doubts over the smooth enactment of any tax plans.

Under the first option proposed by the panel, considered the favorite among tax officials, the government would increase the income tax by either 5.5% for 10 years or 11% for five years, starting next March. Local media reports said Mr. Noda favors a 10-year period for any income-tax increase.

The corporate tax part of the plan is more complex. The government, in line with earlier plans, would cut the 40% corporate tax by five percentage points starting next March 2012. But it would also simultaneously introduce an increase of more than two percentage points over three years, with the proceeds earmarked for reconstruction.

The debate on tax increases to pay for reconstruction is separate from another plan to double the sales tax by the middle of this decade, which is focused on cutting the government’s budget deficit.

Write to Takashi Nakamichi at

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