Opposition remains strong in the ruling and opposition camps to a government panel's proposal to raise taxes to fund post-quake reconstruction, partly because it would dovetail with two other tax increases looming on the horizon.
Opposition remains strong in the ruling and opposition camps to a government panel's proposal to raise taxes to fund post-quake reconstruction, partly because it would dovetail with two other tax increases looming on the horizon.
In a report submitted to Prime Minister Naoto Kan, the government's reconstruction design council proposed on June 25 that key taxes, such as income and corporate taxes, be increased for a limited period.
But as many as 101 lawmakers of the ruling Democratic Party of Japan have signed their signatures in opposition to reconstruction tax hikes.
Ruling and opposition lawmakers are concerned that taxpayers' burden would shoot up in the coming years because major tax increases for two other purposes are planned.
The government intends to gradually raise the consumption tax rate from the current 5 percent to 10 percent by fiscal 2015 to finance snowballing social security costs.
In addition, taxes will be increased to secure 3.2 trillion yen ($40 billion) required over 30 years for payments to hepatitis B patients to settle lawsuits.
The government plans to issue reconstruction bonds for the third supplementary budget for full-fledged reconstruction measures and redeem them with increased taxes.
The government will have to decide on specifics of tax hikes before it submits the third extra budget to the Diet in September or later.
But it is unclear whether the reconstruction design council's proposals will come through because the third extra budget is expected to be overseen by Kan's successor.
Discussions on the tax hike proposals face rough going because Kan is losing his grip over the government after he indicated he would step down at an unspecified date.
"When taxes are raised, the administration's decision-making power and the public trust in politics are essential," a senior Cabinet Office official said. "We don't have either of them."
Damage by the March 11 Great East Japan Earthquake to houses, factories, roads and other facilities is estimated to total 16.9 trillion yen, according to the Cabinet Office.
The cost required for reconstruction is estimated to be at least 10 trillion yen.
The government is considering raising income and corporate taxes for about 10 years to finance reconstruction.
A fixed-rate increase is likely to be adopted for the income tax, meaning that taxpayers bear burdens in accordance with their incomes.
Government officials believe that the method is in line with the reconstruction design council's proposals for burden sharing.
As for the corporate tax, the government is expected to scrap its plan to lower the tax rate by five percentage points and raise the tax rate.
Kan initially intended to increase the consumption tax to fund reconstruction, but has switched to income and corporate taxes because individuals and businesses affected by the earthquake can be excluded from tax hikes.
Lawmakers in the ruling and opposition camps expressed opposition to Kan's plan to raise the consumption tax, saying tax burdens will increase for individuals and businesses in the quake-hit region.
The government plans to raise the consumption tax as part of the simultaneous reform of taxes and social security.
In its report on June 25, the reconstruction design council proposed that housing and urban functions in the quake-hit region be relocated to safer higher ground.
It also recommended that special zones be set up to revive the fishing industry by allowing businesses other than fisheries cooperatives to acquire fishing rights.
The panel also emphasized the importance of minimizing damage by a natural disaster, instead of trying to avoid damage altogether.
The panel is headed by Makoto Iokibe, president of the National Defense Academy of Japan.