Japanese Prime Minister Naoto Kan wants this year to be the year Japan opens up to rest of the world and yesterday called 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, 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 US-backed free-trade zone called the Trans-Pacific Partnership that nine countries are negotiating. Business leaders say Japan must join the partnership or suffer a competitive disadvantage, but farmers are opposed amid worries that cheaper imports would ruin them.
In office since June last year, 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 the parliamentary elections in July last year, contributing to the governing 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 (US$1.11 trillion) draft budget aimed at creating jobs and reviving growth.
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