Japan’s prime minister has pushed ahead with plans to reform tax and social security systems, including raising the sales tax, as the country faces looming problems with its ageing population and bulging national debt.
Prime minister Naoto Kan sought the public’s understanding in a speech that opened the regular session of parliament, where passing this coming fiscal year’s budget will be a top order of business.
Japan is the world’s fastest-ageing population, projected to shrink from 127 million people now to 90 million by 2055 – 40% of whom will be aged over 65. Its national debt is also nearly twice the country’s GDP.
“It is inevitable to ask the people to share in shouldering the burden to some extent,” Mr Kan said. “I want everyone to face the reality and think how we can together overcome the difficulty.”
In his speech, Mr Kan suggested that Japan would have to raise its sales tax, now 5%, to foot growing social security costs and as the working population contracts.
Mr Kan had previously proposed hiking the tax in July just before nationwide elections – an awkward attempt that resulted in a major defeat for his ruling Democratic Party of Japan, which lost control of the upper house of parliament and caused political gridlock.
To attract foreign businesses to Japan and encourage Japanese companies to stay at home, where the economy has remained stagnant for about 20 years, Mr Kan’s cabinet has also proposed cutting the corporate tax by five percentage points to about 35%.
Mr Kan has been unable to get much done in parliament since he took office in June as opposition parties have badgered him about a scandal involving a party veteran and gaffes by the former top government spokesman Yoshito Sengoku.
Earlier this month, Mr Kan revamped his cabinet for the second time, replacing Mr Sengoku and appointing independent fiscal conservative Kaoru Yosano as minister for economic and fiscal policy as a key man to shape tax and social security reforms.
Opposition parties have vowed to push Mr Kan to dissolve the government and call general elections for a public mandate of his policy agenda and leadership.