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According to some estimates, the recovery spending for the twin disasters (March 11 earthquake and tsunami) could run as high as around 10 trillion yen.
Japan’s government plans to begin work on a second supplementary budget after the Golden Week holidays next month. The reconstruction tax provision will be proposed and wrapped into this package.
On Monday, April 18, Democratic Party of Japan policy chief Koichiro Gemba sought cooperation from Shigeru Ishiba and Keiichi Ishii, his counterparts in the opposition Liberal Democratic Party and New Komeito, on a proposal to issue reconstruction bonds. These would mature faster than deficit-covering or construction bonds and be repaid out of a separate budget account. DPJ Secretary-General Katsuya Okada touched on the same idea at a news conference.
The DPJ is eyeing a consumption tax hike, as a finance source to pay back this debt. At 5%, Japan's consumption tax is low compared with European standards and has plenty of room to rise. However, such fundraising will take away a strong option for social security funding and is hard to exempt disaster victims from the higher rate.
Meanwhile, Senior Vice Minister of Finance Fumihiko Igarashi voiced support for temporarily raising income or corporate taxes. Both income and corporate tax rules contain special provisions for natural disasters, making it easy to exempt victims of the March 11 earthquake and tsunami.
Proposals for raising the income tax include an add-on tax of 10% on top of tax payments. Another idea is for a flat-rate increase across all six tax brackets, which range from 5-40%.
On the corporate side, the cutback of preferential tax treatments including Loss carry-back, R&D and other target areas will be carried out as planned, which goes ahead of the proposal of abandoning the reduction of effective corporate tax rate by 5 percentage points.
In addition, other fundraising proposals call for multipronged increases targeting cigarettes, alcohol, property, and other points in the tax code.
