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Prime Minister Shinzo Abe held a press conference on October 1st and announced that the current consumption tax rate of 5% will be raised to 8% from April next year as scheduled. It is also scheduled to be raised further to 10% in October 2015. Do you support this consumption tax increase? Or are you against it?

Japan is now a country with "100 trillion yen in government expenditures and 40 trillion yen in tax revenues." Given this current situation, raising the consumption tax itself is inevitable... However, I think many people would respond by saying that there are other things that should be done before that.
I personally have some doubts about this consumption tax increase.

First, how will the money obtained from the tax increase be used?
The consumption tax hike was originally meant to be discussed together with social security reform measures, and the increased tax revenue was supposed to be used to alleviate people's anxiety about the future. However, in order to prevent an economic downturn that would accompany the consumption tax hike, the Abe administration is considering economic measures totaling 5 trillion yen, including "simple benefit measures" to provide cash payments to low-income earners, expanded tax cuts for companies that have increased wages, and the abolition one year early of the "special corporate tax for reconstruction" that was scheduled to be levied on top of corporate taxes until March 2015. There is a lack of sufficient explanation as to what purpose the tax increase, which was supposed to be used for social security, has gone to.

The second concern is whether discussion of the problems associated with raising taxes has been left behind.
For example, there is the issue of "the disparity between domestic and overseas consumption taxes on e-commerce." In principle, consumption tax is levied on domestic transactions, and in the case of imported goods, the importer pays the consumption tax at customs. However, in the case of e-books, music, videos, etc. distributed over the Internet, customs cannot check even if consumers download data distributed from overseas offices. From the consumer's perspective, Japanese e-books and videos aimed at Japanese people can be purchased cheaper by the amount of the consumption tax if they are distributed from overseas, which puts domestic companies at a disadvantage in the competitive conditions. If the law is not revised, it will affect the employment of 400,000 domestic employees.

It would be a big question if the consumption tax increase were to be implemented without sufficient discussion of these issues. It would be fine if the majority of the public were in favor of it, but if the majority of the public thinks it is strange but thinks "it's a technical matter and I can't say anything," then that would be a big problem. This is because taxes cannot be levied unless citizens agree to it and it becomes law.

Instead of saying, "I don't want to pay taxes, and I don't want to be interested in them," let's take a look at the reality of Japan's tax system. The tax system is a mirror that reflects society, so if there are unfair and unreasonable systems in society, they will be reflected in the tax system.

Taxes are essentially a way of providing necessary financial resources to the nation, the organization to which we belong. Despite this, why is the image of something being "taken" from us so attached to them?

Postwar Japan's tax reforms have basically followed a history of tax cuts, backed by the natural increase in revenue due to economic growth. Furthermore, even after the collapse of the bubble economy, the ruling party continued to cut taxes in order to stay in power. In order to maintain the tax cuts, they issued government bonds in large quantities, eating into future tax revenues.

Politicians have also acted as if calling for tax cuts is the right thing to do. In reality, it is the wealthy who are calling for tax cuts, who don't give their own money to the government in exchange for not asking for anything from the government. In contrast, ordinary citizens should want the wealthy to pay an appropriate burden (tax increases) to secure public funds and improve social security through income redistribution. Despite this, the argument that "tax cuts are the best way to win" has been allowed to prevail. As a result of these tax reforms, Japan has become a "small government" with a low tax burden and a low proportion of the population made up of civil servants.

Graph (1) compares the "tax burden rate as a percentage of national income" of OECD (Organization for Economic Cooperation and Development) countries. Looking at this, we can see that Japan's tax burden rate of 22.1% is the lowest among major developed countries. Sweden, known for its high tax burden rate, has a rate of 46.9%, more than twice as high as Japan's.

Graph (2) compares the value-added tax rates (standard tax rates) of each country and region. As we can see, Japan’s consumption tax is at the lowest level, along with Canada and Taiwan.

Next, let's look at data comparing how people feel about their tax burden. According to a 2006 survey on the tax burden of the middle class in various countries conducted by the International Survey Group (ISSP), over 60% of people in Japan think that their tax burden is high, the fifth highest among major countries, while Sweden ranks eighth, lower than Japan.

In Japan, the tax burden is low, but people feel that they are being taxed heavily. In Sweden, the tax rate is high, but people do not feel that they are being taxed heavily. Where does this difference come from?

In Japan, people rarely feel the benefits of paying taxes, whereas in Northern Europe, there are many opportunities to feel the benefits of paying taxes. This difference is reflected in whether people feel that taxes are something they "deposit into the government" or something that "the government takes from them."

So how can we make it possible for taxes in Japan to be seen as something "deposited to the government"?
First, we need to ensure that the process for reforming the tax system is fair and just.

Currently, tax reforms are carried out every year, with requests for reform submitted by each ministry and agency around August, which are then reviewed by the ruling party and the government's Tax Commission before being presented as the "Tax Reform Outline" in mid-December. Under the Liberal Democratic Party administration, the ruling party's Tax Commission essentially discusses and decides on the tax reforms, but the process of deliberation there is completely opaque, and sometimes things are only known in the government outline. After that, a tax reform bill is prepared and debated in the Diet from around January to March, and if passed, the new tax law will be applied.

If this process is fair and appropriate, the irrationalities of the tax system will be corrected. For this to happen, the most important thing is for members of parliament and political parties to have a proper understanding of and opinions on tax law. If the ruling party and its members share a solid understanding and create a fair tax reform bill, the Ministry of Finance will have no choice but to follow it.

It is also necessary for citizens to participate in the tax reform process.

Personally, I wonder if it is necessary to revise the tax system every year as we do now. In the future, how about making tax reform a major national event held once every two years? In the first year, the government would put forward a draft, and in the second year, each political party would hold lively debates over it. At the same time, people from all walks of life would widely offer their opinions in response to the arguments of each political party.

By doing this, the general public will become interested in taxes and be able to talk about them on a daily basis. To achieve this, it is also necessary to create a system that makes the contents of taxes visible.

Citizens should participate more in the discussion of what to use their taxes for. If they do, I think they will be able to see their taxes as something they "deposit" into the government, rather than something "taken from them by the government." What taxes are used to implement what policies...this is politics. In other words, it can be said that "tax issues are the essence of politics."

The oldest record of taxes in Japan dates back to the 3rd century. The first mention of taxes in Japan can be found in the Gishiwajinden, which states that taxes were paid in the Yamatai Kingdom under the rule of Himiko.

The history of taxes is long, but most of it was actually during the "era of kings." In those days, kings granted privileges to administrative agencies acting on their behalf to collect taxes from the people. Under this system, taxes were simply something that was "taken" or "lost" to the people.

After the war, a new constitution was enacted in Japan, and the people themselves became the sovereigns. The system was changed so that the people would run their own organization, the "country," with their own power. Since taxpayers became the sovereigns, the tax system should also have been decided by the sovereigns, but tax administration has been carried out under a censorship-oriented mindset, dragging along various systems from the era of the kings.

In particular, in the case of Japanese income tax, thanks to withholding (so-called "deduction") and year-end tax adjustments performed by companies, we have become a society where ordinary salaried households hardly have to think about taxes. This may have fostered a mindset among the public and politicians that "tax increases are bad, and tax cuts are the right thing to do." It is time to change this mindset.

But do we, the Japanese people, really understand this? If we still feel that taxes are something that are "taken," what is the reason for this? Even though the people have become sovereign, they have not been aware of this and have not faced taxes head on. As a result, Japan has become a country with "fiscal expenditures of 100 trillion yen and tax revenues of 40 trillion yen" (Graph (3)). Who is to blame for this?

As sovereign citizens, we cannot get away with saying, "I don't want to pay taxes, and I don't want to be interested in them." We are the ones who decide on taxes. Let's take this opportunity of the consumption tax increase to think together about "how we create our tax system and how we use the money."

(Published in 2013)