Tags: Kan Japan Must Debate Sales-Tax Hike as Nation Ages

Prime Minister: Japan Must Debate Sales-Tax Hike as Nation Ages

Tuesday, 04 Jan 2011 09:57 AM

The Japanese prime minister wants 2011 to be the year Japan opens up to rest of the world and called Tuesday for debate on raising the sales tax to prop up ailing finances as the country's population shrinks and ages.

To revive its struggling economy, Japan needs to embrace free trade and reform its protected farming sector, Prime Minister Naoto Kan said in a nationally televised press conference to set his agenda for the new year.

"I want this to be Year One of opening up the country" in the modern era, Kan said.

Japan is facing increasing competition from regional rivals like China, which overtook it to become the world's No. 2 economy, and South Korea, which is ahead of Japan in terms of free trade deals.

Tokyo is considering whether to join a U.S.-backed free-trade zone called the Trans-Pacific Partnership that nine countries are negotiating. Business leaders say Japan must join the TPP or suffer a competitive disadvantage, but farmers are opposed amid worries that cheaper imports would ruin them.

In office since June, Kan also raised the possibility of increasing the 5 percent sales tax to shore up the country's finances given its massive national debt, nearly double the country's GDP, and spending on social programs.

Still, the move is a political risk. Kan disastrously suggested raising Japan's sales tax to as high as 10 percent just before July's parliamentary elections, contributing to the ruling Democratic Party losing control of the upper house, a recipe for political gridlock.

"The need for a discussion about social welfare and the resources required, including tax reform and raising the consumption tax, is clear to everyone," he said.

Kan said he hoped to draw up a general financial plan by June. He has already announced plans to cut the country's corporate tax rate by 5 percentage points to 35 percent in a bid to help businesses stay competitive and lure investment.

Japan's economy is entering its third decade of stagnation. Last month, the Cabinet approved a record 92.4 trillion yen ($1.11 trillion) draft budget aimed at creating jobs and reviving growth.

At the same time, the country faces a looming demographic squeeze, as young people wait longer to get married and have fewer children. Last year, its population fell by a record number, while Japanese aged 65 and older now make up about a quarter of the country's current population — a figure expected to rise to 40 percent by 2050.

Kan also said he will try to balance Japan's commitment to hosting U.S. troops with lightening the load on Okinawa, where over half of the 47,000 U.S. military in the country are based under a security pact. He hinted he may attempt to shift some troops elsewhere in the country, which can be dangerous politically — the previous prime minister was forced to step down after he made a promise to do so and failed to deliver.

"This is a problem that we must consider from the perspective of Japan as a whole. I want to try to reduce the burden on Okinawa as much as possible," he said.

Kan requested cooperation from his political opponents, saying the public has been disappointed by political squabbling that has paralyzed parliament. He also called for the eradication of "money politics," a reference to the series of scandals that have plagued Japanese politicians over the years.

He also suggested that party veteran Ichiro Ozawa, who is embroiled in a financial scandal, may need to leave the party or even resign as a member of parliament. Kan defeated Ozawa in a September party election to choose the Democrats' leader.

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