Japan eyes sales tax rise to pay for post-quake rebuild

Gov't considering raising tax by 3 points to 8% to help cover $300b. in damage; highly contaminated water removed from Fukushima reactor.

By REUTERS
April 19, 2011 11:33
2 minute read.
aerial view of the Fukushima Nuclear Power Plant

Fukushima power plant Japan 311. (photo credit: REUTERS/Air Photo Service)

 
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TOKYO - Japanese consumers may have to help foot the reconstruction bill after last month's earthquake and tsunami caused $300 billion of damage, further burdening the hugely indebted economy, a newspaper said on Tuesday.

The government is considering raising the tax by 3 percentage points to 8 percent when the new fiscal year starts next April, the Yomiuri newspaper reported.

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It would be the first increase since 1997, though a sales tax had been the subject of fierce political debate before the earthquake struck as one way for Japan dig itself out of its massive debt.

"It was clear even before this disaster and the need to secure funds for reconstruction that to ensure a sustainable fiscal situation, some sort of reform of spending and revenues was necessary," said Internal Affairs Minister Yoshiro Katayama.

"The debate over the fiscal situation is not something that began with this disaster," he told reporters.

The government hopes to avoid issuing new bonds to fund an initial emergency budget, expected to be worth about 4 trillion yen ($48 billion), due to be compiled this month.

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But bond issuance is likely for subsequent extra budgets which will only make it harder for Japan to rein in its debt, already running at twice the size of the $5 trillion economy.

Though the triple disasters of quake, tsunami and nuclear crisis are bad news for the Japanese economy, the damage is not expected to spill over across the region.

The government says it has not yet decided how to fund the rebuilding cost but the Yomiuri said it had ruled out raising income and corporate taxes.

"I am aware that the Democratic Party is considering various methods, including this (tax rise). But the government is not considering any specific funding methods at this stage," top government spokesman Yukio Edano told a news conference.

A poll by the Nikkei business daily showed about 70 percent of Japanese voters would support a tax hike, but want unpopular Prime Minister Naoto Kan to be replaced.

'Highly contaminated water removed from reactor'

As well as trying to deal with the consequences of quake and tsunami which killed at least 13,000 and left tens of thousands homeless, Japan is struggling to control the Fukushima Daiichi nuclear power plant that began leaking radiation when it was nearly destroyed by the natural disasters.

Plant operator Tokyo Electric Power (TEPCO) said it had started removing highly contaminated water from one of the reactors, a key step to repair the cooling system that regulates the temperature of radioactive fuel rods.

It wants a "cold shutdown" of the plant in six to nine months, setting a time-frame for bringing the world's worst nuclear crisis in 25 years under control.

The damage to Fukushima Daiichi, and the shutdown of other nuclear power plants, has caused power outages that exacerbate the disruption to manufacturing supply chains and overall economic activity.

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