As fiscal deficits continue, the government's Tax Commission will emphasize the importance of securing enough tax revenue to finance governmental spending, according to a draft of the commission's medium-term report on proposals for taxation.
The commission is an advisory panel to the prime minister that proposes medium- and long-term taxation systems. Its medium-term report will propose to the administration of Prime Minister Fumio Kishida that "all of society should share the necessary tax burdens."
As Kishida has rejected the idea of raising taxes to secure funding for measures to cope with the nation's declining birth rate, the report will likely cause a stir.
The Tax Commission will submit a mid-term report for the first time in four years, following the previous one in September 2019. It plans to make the draft report official by the end of this month at the earliest and then submit it to the prime minister.
In the draft report, the commission points out that the government's fiscal management relies on issuing large amounts of public bonds, as governmental expenditures for social security purposes have been increasing.
"If necessary tax burdens are postponed to the future, some believe it could damage economic efficiency," the report says.
This is based on a view that if the government avoids tax hikes, the issuance of deficit-covering government bonds will increase and heavier burdens will be passed on to future generations.
The draft report was spurred by a sense of urgency about the current situation, in which the government's tax revenues have not caught up with rising expenditures that ballooned to cope with the novel coronavirus crisis.
In the government's general account, tax revenues covered about 80% of all governmental expenditures between the years just after the end of World War II to the initial years of the Heisei era (1989-2019). However, that percentage fell to the 40% level in fiscal 2020 and 2021.
A member of the Tax Commission mentioned at a meeting in May three principle of taxation: Taxes should be fair, neutral and simple. The member said, "One more principle should be added, that sufficient tax revenues are secured."
The draft report also cites individual tasks to be addressed. It says that as working styles have diversified, as seen with freelance workers, it is important to maintain a balance regarding income tax so that salaried workers and self-employed people will not feel they are being treated unfairly.
Regarding the consumption tax, the draft says, "The tax will continue to be important partly from the perspective that it should support governmental spending for social security in a stable way." However, the draft does not mention whether the consumption tax rate should be raised.
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