Old habits die hard in Japan:
The head of Prime Minister Junichiro Koizumi's tax commission has said the Japanese government could move to increase the tax burden on individuals as early as next year as a broadening recovery boosts the economy. Hiromitsu Ishi, who is also president of Hitotsubashi University, said tax cuts introduced by a previous government in 2000 had to be repealed or mitigated and "maybe in a year or so. .. discussion of this will come from the political side".Tax on consumption, income and inheritance should be raised, he said, as part of broader reforms to boost tax revenues. Any plan to raise taxes levied on individuals would be met with political and economic controversy.
Some voters are likely to resist paying more taxes, particularly if companies do not appear to be sharing the burden. The timing of a tax rise would also be crucial, as a consumption tax increase in 1997 was criticised for being too hasty and choking off an economic upturn.
Let's hope the Japanese electorate smothers any hopes in Tokyo of dipping into the free-market bounty enjoyed by the country for nearly a year. Prime Minister Junichiro Koizumi responded to public queries by reiterating his pledge not to raise taxes. It's difficult to say whether the rest of Koizumi's Liberal Democratic Party will respect the prime minister's wishes; to make matters worse, opposition leaders in the Democratic Party of Japan favor tax increases. Those of us who know better understand the tax dance: rates go up, revenue streams that might briefly increase stutter and fail as the economy chokes up — though often after legislators have shifted their priority from debt-bailing to pork barrel-lining. The economy falters, revenues trickle, debt soars; the state returns to the decision of whether to cut taxes and let the private sector free again, or play by the rules of the bureau and raise duties and squeeze a few more dollars out of taxpayers.
The Japanese were doing well. It'd be a shame to see them ignore free-marketeers' advice and go back to square one.