With Japanese society aging rapidly, what kind of tax reform is needed to cover soaring social security costs? The government's tax panel answer is that taxpayers must assume a greater burden. In a report presented to Prime Minister Junichiro Koizumi last week, the Tax Commission called for raising personal-income and consumption taxes.
Perhaps the government's tax advisers deserve commendation for their courage to propose such a painful prescription at a time of near-zero economic growth. The proposal is a candid admission of the glaring gap in the national budget -- a gap so wide that it cannot possibly be closed without tax increases, even if the economy improves in the future.
Higher taxes are always unwelcome to taxpayers. But even those who reject them cannot ignore the reality that tax revenues take up only half of the 82 trillion yen budget; the other half relies on debt issues. Spending reform is necessary, of course, but it is not the most effective way of bridging the wide deficit.