Identifier
Created
Classification
Origin
06TOKYO1567
2006-03-24 08:34:00
UNCLASSIFIED//FOR OFFICIAL USE ONLY
Embassy Tokyo
Cable title:  

CONSENSUS EMERGING TO RAISE CONSUMPTION TAX TO 10

Tags:  ECON EFIN JA 
pdf how-to read a cable
VZCZCXRO0522
RR RUEHFK RUEHKSO RUEHNAG RUEHNH
DE RUEHKO #1567/01 0830834
ZNR UUUUU ZZH
R 240834Z MAR 06
FM AMEMBASSY TOKYO
TO RUEHC/SECSTATE WASHDC 0129
INFO RUEHBJ/AMEMBASSY BEIJING 1313
RUEHFR/AMEMBASSY PARIS 4881
RUEHUL/AMEMBASSY SEOUL 7501
RUEHFK/AMCONSUL FUKUOKA 5305
RUEHNAG/AMCONSUL NAGOYA 5317
RUEHNH/AMCONSUL NAHA 7938
RUEHOK/AMCONSUL OSAKA KOBE 8454
RUEHKSO/AMCONSUL SAPPORO 6488
RUEATRS/TREASURY DEPT WASHDC
RUCPDOC/USDOC WASHDC
UNCLAS SECTION 01 OF 02 TOKYO 001567 

SIPDIS

SENSITIVE
SIPDIS

STATE PLS PASS USTR FOR CUTLER, BEEMAN
TREASURY FOR IA/SOBEL, LOEVINGER, DOHNER, GREWE
USDOC FOR ITA/OFFICE OF JAPAN
PARIS FOR USOECD

E.O. 12958: N/A
TAGS: ECON EFIN JA
SUBJECT: CONSENSUS EMERGING TO RAISE CONSUMPTION TAX TO 10
PERCENT, SAYS LDP'S YANAGISAWA


SENSITIVE BUT UNCLASSIFIED - PROTECT ACCORDINGLY

UNCLAS SECTION 01 OF 02 TOKYO 001567

SIPDIS

SENSITIVE
SIPDIS

STATE PLS PASS USTR FOR CUTLER, BEEMAN
TREASURY FOR IA/SOBEL, LOEVINGER, DOHNER, GREWE
USDOC FOR ITA/OFFICE OF JAPAN
PARIS FOR USOECD

E.O. 12958: N/A
TAGS: ECON EFIN JA
SUBJECT: CONSENSUS EMERGING TO RAISE CONSUMPTION TAX TO 10
PERCENT, SAYS LDP'S YANAGISAWA


SENSITIVE BUT UNCLASSIFIED - PROTECT ACCORDINGLY


1. (SBU) Summary: A domestic business sector consensus is
emerging in favor of raising Japan's consumption tax from 5
to 10 percent, and the Japanese people are ready to accept
it, according to LDP Tax Policy Committee Chairman
Yanagisawa. A Cabinet decision to increase the rate is
expected in June, although it will not specify the timing or
amount of a future increase. The actual increase is likely
to be phased in between 2009 and 2015, Yanagisawa told
Embassy EMIN. Yanagisawa did not discuss the potential
adverse impact on private demand of a consumption tax
increase. End Summary.


2. (SBU) A business sector consensus is emerging in favor of
raising Japan's consumption tax to 10 percent from the
current 5 percent rate, LDP Tax Policy Committee Chairman
Hakuo Yanagisawa told Embassy EMIN on March 16. During a
meeting with Yanagisawa the previous day, representatives of
the Japan Business Federation (Nippon Keidanren) had
advocated increasing the consumption tax at the earliest
possible time, citing the fact that Japan's 5 percent
consumption tax rate is "extremely low" compared with other
OECD countries. Yanagisawa reported hearing similar views
from local business circles. Half jokingly he remarked that
the only ones who do not share this view are Japanese
housewives, who are sensitive to even a one-point increase
and would not be won over easily. Nevertheless, he asserted,
the Japanese people are prepared for an increase to 10
percent. The only issues to be settled are whether the
increase would take place all at once or in stages and
whether there would be any exemptions such as food.
Yanagisawa said he would favor no exemptions unless the tax
is set above 10 percent.


3. (SBU) On the timing of a consumption tax increase,
Yanagisawa said that some increase in 2009 was inevitable, as
the revision of Japan's Pension Act scheduled for that year
would increase the share of basic pensions paid from tax to
half from the current one-third. A one-percentage-point
increase in the consumption tax rate would be sufficient to
cover this additional expenditure, he noted. Yanagisawa's
preference, however, would be to defer any further increase
until 2015, the year Economic and Fiscal Policy Minister
Yosano is targeting to achieve a primary surplus of 10
trillion yen, about 2 percent of GDP. (Comment: A one-time
increase in the consumption tax from 5 or 6 percent to 10
percent would likely have a contractionary macroeconomic
impact on 2-3 percent of GDP. End Comment.) Yanagisawa
cited 2011 as another possible target, since Yosano is aiming
to eliminate the GOJ primary deficit by then, but Yanagisawa
said he opposes making staged increases in both 2011 and 2015.


4. (SBU) Yanagisawa said he expects a Cabinet decision on a
road map for the consumption tax increase in June, but the
road map would be silent on the timing of specific measures
in order to allow future decisions based on economic
circumstances at the time.


5. (SBU) Yanagisawa added that the GOJ has not yet agreed on
the baseline for annual revenue to use in its fiscal
projections. LDP Policy Council Chairman Hidenao Nakagawa
and MIC Minister Takenaka favor a rising baseline that
reflects Japan's improved economic outlook, while Yosano and
Finance Minister Tanigaki prefer a flat revenue baseline.


6. (SBU) Comment: As chair of the LDP Tax Policy Committee,
Yanagisawa faces competing pressures to address Japan's
fiscal challenges while trying to minimize the difficult
fiscal choices that Prime Minister Koizumi's (presumably LDP)
successor will inherit. Koizumi's promise not to raise
consumption taxes during his term, while politically
expedient, also reflected the memory of Japan's disastrous
1997 consumption tax hike that, together with the Asian
financial crisis and a domestic banking crisis, helped choke
off a nascent recovery. Notwithstanding business sector

TOKYO 00001567 002 OF 002


support for raising the consumption tax as soon as possible,
the timetable Yanagisawa described seems calculated to put
off any increase as long as possible. The adoption of a
"road map" in June would give Koizumi's successor some
breathing room on the consumption tax issue, but the next
prime minister will still face politically difficult
decisions, as significant spending cuts would be required to
achieve a primary balance by 2011 and a 2% of GDP surplus by
2015 without a major increase in revenue. End comment.
SCHIEFFER