Japan Lawmakers Oppose Rebuilding Tax, Call for More Central Bank Action

A cross-party group of senior Japanese lawmakers said Prime Minister Naoto Kan shouldn’t raise taxes to pay for rebuilding from last month’s earthquake, and called on the central bank to buy more government bonds instead.

“It’s wrong to immediately raise taxes from a macro- economic standpoint, and we should use government bonds,” Sakihito Ozawa, a former environment minister and member of Kan’s Democratic Party of Japan, said at a press conference today in Tokyo. “The Bank of Japan should buy bonds in purchase operations to raise cash.”

Ten legislators from the DPJ, the main opposition Liberal Democratic Party, the New Komeito Party, the Social Democratic Party, the Your Party and the People’s New Party attended the briefing. They made no specific mention of pushing the BOJ to directly underwrite government debt, a suggestion Governor Masaaki Shirakawa and administration officials have rejected.

Polls show the public favors higher taxes to pay for reconstruction from the March 11 record earthquake and tsunami that left almost 26,000 people dead or missing. Kan’s initial 4 trillion yen ($49 billion) rebuilding plan doesn’t require funding from government debt. Subsequent packages will require issuing bonds, he said on April 27.

Shirakawa has responded to the disaster by injecting trillions of yen into the banking system and setting up a credit program to cash-strapped businesses. The central bank buys 1.8 trillion yen in government bonds every month from lenders, having increased the amount twice since he came into office in April 2008.

No Inflation Risk

Lawmaker Hidenao Nakagawa, a former LDP chief cabinet secretary and party secretary-general, said the Bank of Japan could buy an additional 20-30 trillion yen in bonds without any risk of inflation. Japan’s economy has struggled with deflation for more than a decade.

“The next stimulus is going to require a huge amount of money,” Nakagawa said. “We couldn’t raise taxes right now anyway so of course we have to issue reconstruction bonds. Economic recovery and getting out of deflation are the priorities.”

The DPJ is considering higher taxes as one option to fund rebuilding efforts, Chief Cabinet Secretary Yukio Edano said on April 19. The Yomiuri newspaper the same day reported Kan was considering raising the 5 percent national consumption tax to 8 percent for three years starting in 2012, without citing anyone.

Debt Burden

Economy and Fiscal Policy Minister Kaoru Yosano said on April 21 that higher taxes must be part of the effort. Policy makers a grappling with paying for disaster relief without adding to a debt burden that is almost 200 percent of gross domestic product.

Japan’s sovereign-rating outlook today was cut to “negative” by Standard & Poor’s on concern reconstruction will add to the debt load. Kan has yet to say how he plans to control longer-term fiscal deficits.

The teaming up of ruling-party legislators with opposition members comes as pressure builds over Kan’s handling of the disaster. His party suffered setbacks in local elections this month and some DPJ lawmakers are expressing dissatisfaction with his leadership. A group of about 60 of them met yesterday to request a meeting of all DPJ parliamentarians to discuss the party’s future.

To contact the reporters on this story: Sachiko Sakamaki in Tokyo at Ssakamaki1@bloomberg.net

To contact the editor responsible for this story: Peter Hirschberg at phirschberg@bloomberg.net

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