Japan Planning Tax Increase

At a time when U.S. politicians are calling for tax cuts to stimulate the flagging American economy, Japan is moving to raise taxes to maintain tight fiscal discipline.

The Finance Ministry on Sunday unveiled a draft budget for the coming fiscal year that includes a $5.7-billion tax increase to ensure that the government will not have to borrow to cover current operating expenses. The additional taxes are necessary because Japan’s economic slowdown is causing government revenue to fall short of expectations, the ministry said.

The proposed tax increase isn’t very large in the context of a $3.75-trillion economy, and its impact will be more than offset by some stimulative spending measures on long-term government projects.

Japan’s decision to raise taxes reflects the strongly held view among the powerful bureaucrats at the Finance Ministry’s budget bureau that even though the Japanese economy has turned sluggish, Tokyo must be kept from starting down the road to a U.S.-style deficit spending spree.