Tax hikes for rebuilding likely to increase

Higher taxes are in the cards following the government's decision to increase the value of post-quake reconstruction bonds by 2.5 trillion yen ($31.30 billion). The government decided Aug. 4 to issue more bonds to make up for the 2.5 trillion yen in special revenue for pension reserves that was diverted for the first fiscal 2011 supplementary budget. The government initially planned to issue reconstruction bonds worth 10 trillion yen, to be redeemed with proposed temporary hikes in income and other taxes. For the additional bonds worth 2.5 trillion yen, the government intends to secure funding by reducing expenditures and increasing taxes, officials said. If the government fails to cut spending, 2.5 trillion yen would be simply added to the proposed temporary tax hikes. The government did not issue bonds for the first fiscal 2011 supplementary budget for rebuilding from the March 11 Great East Japan Earthquake. It was financed by a review of government expenditures as well as the 2.5 trillion yen that the government originally planned to use to shoulder its 50 percent share of the basic portion of public pension programs. The welfare ministry, which is in charge of the pension programs, opposed the move. Welfare minister Ritsuo Hosokawa insists that the diverted funds must be paid back by reconstruction bonds. Reconstruction bonds are expected to be issued by the end of the current fiscal year. The government plans to submit a bill for the temporary tax hikes to an extraordinary Diet session in autumn, along with a third fiscal 2011 supplementary budget. But there is no guarantee that the bill will be submitted. Within the ruling Democratic Party of Japan, many lawmakers said Naoto Kan's successor as prime minister should decide whether tax increases are necessary. The opposition parties have also refused to discuss tax hikes as long as Kan remains in office.