Japan's lower house voted Tuesday to double the country's sales tax to 10 per cent over three years in a bid to rein in a bulging national deficit as an aging population burdens the nation's social security system.
The vote, however, may have weakened Prime Minister Yoshihiko Noda's grip on power as the measure faced strong opposition from a group within the ruling party, led by power broker Ichiro Ozawa, that believes the tax hike is premature and will further weaken the economy. Ozawa and his supporters have threatened to leave the party over the tax issue.
The bill passed easily by a vote of 363-96, with support coming from the two biggest opposition parties. The tax bill still must pass the less powerful upper house to become law, which is expected.
It calls for raising the sales tax from 5 per cent to 8 per cent in 2014, and then to 10 per cent in 2015.
Noda, who has been in power only since last September, has said the tax hike is needed to reduce Japan's bulging national debt, which is more than twice its gross domestic product. He has made the tax move the centrepiece of his efforts to tackle Japan's structural woes.
Finance Minister Jun Azumi said he hoped the vote would send a message to the world that Japan is dealing with its economic problems. "I think this shows the international community that although we had been criticized as indecisive, we are taking action," he said.
Japan was hit hard by last year's devastating earthquake and tsunami but has been sputtering for years with a stagnant economy and under one of the largest public debt burdens in the developed world. The country's aging population, meanwhile, has put a strain on the social security and tax systems, with Japanese aged 65 and older now making up about a quarter of the nation's population — a figure projected to rise to 40 per cent by 2050.
"This reform is not just for our generation, but for our future," Noda declared before the vote.
But even Noda's government projects the step will take only a modest bite out of Japan's deficit. The Cabinet Office forecasts that doubling the sales tax will boost revenues by 13.5 trillion yen ($175 billion Cdn) annually by 2015. Japan currently runs a deficit of about 45 trillion yen ($580 billion) a year.
Some economists warn that the tax hike will end up undermining Japan's economy by weakening consumer demand at a time when wages are stagnant and people are already holding back on spending. Key auto and electronics exporters, meanwhile, have been battered by a strong yen and intensifying competition from Asian rivals.