Appeal
Raise your voices against raising the consumption tax rate to 10 percent

Standing Executive Committee
National Confederation of Trade Unions (Zenroren)
June 29, 2010

Tax reform focusing on a consumption tax increase has emerged as a main issue in the House of Councilors election campaign. Prime Minister KAN Naoto referred to tax reform at a news conference on June 21, He called for a “cross-party discussion,” adding that he would take into account the Liberal Democratic Party’s proposal for raising the consumption tax to 10 percent (from the present five percent). He even said, “This (10 percent) can be taken as a public promise” of the ruling Democratic Party of Japan.

The DPJ “policy platform” (manifesto) calls for a “cross-party discussion on tax reform, including the consumption tax rate.” It also says, “The corporation tax rate will be simplified and lowered.” The LDP also proposes raising the consumption tax rate to 10 percent and lowering the corporation tax rate.” Other parties, including the New Renaissance Party and the Sunrise Party of Japan, are in the same position as the LDP. The Your Party simply calls for the corporation tax rate to be lowered without referring to the consumption tax.

Japan’s financial circles led by the Japan Business Federation (Nippon Keidanren) have been strong advocates of reduction in the corporation tax rate. Those political forces that are in favor of a consumption tax increase are now joining forces to form a grand coalition to meet the demand of the financial circles. This is a major political change that has taken place since the start of campaigning in the House of Councilors election. If we fail to act now to stop the raising of the consumption tax rate to 10 percent, the consumption tax increase and corporation tax reduction are likely to be imposed at once. The DPJ envisages a plan to raise the consumption tax rate in tax reform bills to be enacted by March 31, 2011 and implemented after fiscal 2012. It has no intention to ask for approval of the consumption tax increase by holding a House of Representatives general election. The voters are asked to decide whether to approve the consumption tax increase.

In Japan, consumers are forced to pay the consumption tax on purchases of daily necessities, including food and clothing. The consumption tax is really a regressive tax that forces lower income earners to shoulder heavier burden. If consumption tax revenue becomes the main source of Japan’s tax revenue, using tax revenues to redistribute the wealth and provide social services will become more difficult. This will further increase the poverty rate and widen economic inequalities. Large corporations do not have to pay the cost of the consumption tax because they can sell products at prices that cover the consumption tax. This clearly shows that the consumption tax increase only benefits large corporations, as clear from what has happened since the introduction of the consumption tax more than 20 years ago.

The DPJ and the LDP argue that the corporation tax rate is so high that it impairs Japanese companies’ international competitiveness. However, the average corporation tax rate actually paid by Sony Corporation, an electronics giant, between fiscal 2003 and 2009 was 12.9 percent, which is lower than what salaried workers pay in income tax and residence tax. The average corporation tax rate for 100 firms with highest pretax profits is 33.7 percent. Japan’s corporation tax rate, 40 percent, is nothing but a nominal rate because large corporations receive various tax breaks. For example, the nation’s largest banks, including the Bank of Tokyo-Mitsubishi UFJ, has paid nothing in tax for several years under the pretext that they had to dispose of non-performing loans.

Japanese corporations pay only eight percent of the cost for social services and taxes, as compared to German’s 8.4 percent, France’s 13.9 percent, and Sweden’s 14.6 percent. The argument that the corporation tax rate and their share of costs for social services are so high that it hampers their international competitiveness disregards the fact. It is very important for us to raise voices opposing a consumption tax increase that will only offset losses of revenue from a reduction in the corporation tax.

The advocates of the so-called “structural reform” policy said that large corporations with strong international competitiveness will help the economy to grow, which in turn help improve workers’ livelihoods and revitalize local economies. As a consequence, wages for workers have continued to decline, and domestic demand has shrunk. Today, Japanese society is plagued with growing poverty and widening economic inequalities. It is now facing a deflationary spiral. In such circumstances, if a higher consumption rate is imposed on the general public and small- and medium-sized businesses, people will be further discouraged from spending money. If ordinary people are forced to pay more with the present taxation system that benefits large corporations and the wealthy unchanged, the poverty rate will further increase; the gap between poor and rich will be wider than ever; and local economies will be further weakened.

Zenroren will use the remaining short period of time before the House of Councilors election to continue to call for opposition to the proposal for a consumption tax increase and demand that the present tax system in favor of large corporations be ended and that large corporations use a part of their internal reserves for the benefit of public well-being. We cannot overlook the arguments that regard the raising of the consumption tax rate and the lowering of the corporation tax rates as necessary. In workplaces and local communities, let us fight to prevent the consumption tax rate from being increased to 10 percent, and let us demand an end to the tax system benefiting large corporations. We call on member unions to utilize Zenroren’s flyers, posters and audio tapes for publicity and study meetings so that we can make out voices against the raising the consumption tax rate to 10 percent. Now is the time to act to realize our demands.