Noda Asks Japan to Support Tax Increase to Fund Quake Rebuilding

Japanese Prime Minister Yoshihiko Noda
Yoshihiro Noda, Japan's prime minister. Photographer:Haruyoshi Yamaguchi/Bloomberg

Japanese Prime Minister Yoshihiko Noda said tax increases are needed to pay for the recovery from the March earthquake without adding to the country’s debt burden.

Noda used a speech today in parliament to push his plan to temporarily raise taxes by 11.2 trillion yen ($148 billion) and sell government shares in Japan Tobacco Inc. and Japan Post Holdings Co. to rebuild from the disaster. With government debt twice the size of gross domestic product, Japan can’t ignore the European financial crisis, he said.

“The country’s fiscal situation is in a serious state,” Noda said, according to the text of his speech. “We are asking people to share certain burdens.” The government today announced Noda will take a pay cut of 30 percent while his ministers will see their salaries reduced by 20 percent.

The cabinet today submitted to parliament a 12.1 trillion yen disaster aid package, the third since the March 11 quake and tsunami that killed almost 20,000 people and caused the partial meltdown at the Fukushima Dai-Ichi nuclear power plant. The tax increase and sale of shares in the former tobacco monopoly and the postal savings system also must pass the Diet, where the ruling Democratic Party of Japan lacks an upper house majority.

A successful sale of the shares could reduce the tax increase by as much as 2 trillion yen over a decade, under the plan submitted today. Corporate taxes would be raised starting in April for three years, while income taxes will increase as of January 2013 for 10 years. Tobacco levies will go up next October.

“We will gather all the possible extra-tax funding by selling government assets including Japan Post and Japan Tobacco shares,” said Noda, who last month became the DPJ’s third prime minister in two years after Naoto Kan resigned over his handling of the crisis.

Debt Crisis, Trade

Noda said he will announce Japan’s contribution to help the global economy affected by the European sovereign-debt crisis at next week’s Group of 20 summit in France. He reiterated that the government will decide whether to join the U.S.-led Trans-Pacific Partnership free trade talks “as soon as possible” without specifying when.

The DPJ is split over whether to promote trade to boost economic growth as the population declines, or protect the nation’s farmers who may be harmed by lower tariffs and increased competition. Party leaders are aiming to reach a decision before Noda heads for the summit meeting of Asia-Pacific Economic Cooperation in Honolulu on Nov. 12-13.

“We will pursue high-level economic partnerships with a broader range of nations in strategic and multiple ways,” Noda said.

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