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June 22, 2010

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Kan mulls hike in sales tax to tackle Japan's debt

JAPAN will start debating a possible sales tax hike after next month's upper house elections to rein in the nation's bulging debt, Prime Minister Naoto Kan said yesterday, stressing that sturdy finances are vital for supporting a strong economy and society.

Kan said a decision on raising the consumption tax, now at 5 percent, likely wouldn't come for at least two years, but said a recent proposal by the opposition conservatives to raise it to 10 percent could be considered.

"Strong finances are indispensable for economic growth and social security," he told a news conference in Tokyo, vowing to continue the government's effort to slash wasteful spending. "But in order to sustain growth, we also need tax reforms."

Japan will hold elections to the parliament's upper house on July 11. Kan's ruling Democratic Party of Japan controls the more powerful lower house, so even a dismal result in next month's vote won't affect its grip on power. But a poor showing would make it more difficult to pass key legislation and could force it to add other coalition partners.

Kan will make his diplomatic debut later this week when he attends the Group of 8 and Group of 20 summits in Canada - where he said that "fiscal reconstruction" would be at the top of the agenda.

A fiscal hawk and social progressive, Kan has warned that Japan could face a crisis similar to the one that has crippled Greece if it doesn't urgently deal with its debt burden - although experts say the comparison is overstated given that most of Japan's government bonds are held domestically. "In order to support a strong economy, we need strong government finances."



 

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