LDP rules out tobacco tax hike in fiscal 2009

A tobacco tax hike will not be among the tax reform proposals for fiscal 2009 being put forward to cover ballooning social security costs, Liberal Democratic Party sources said Thursday.

Cabinet ministers and LDP members had targeted tobacco as a revenue source to help ease the government's obligation to curb natural increases in social security expenditures by ¥220 billion annually.

A senior member of the ruling LDP's tax panel said the party will stipulate in its tax reform proposals due Friday that the tobacco tax boost be a "medium-term issue to be considered in view of improving people's health."

Some LDP members opposed the hike to protect tobacco farmers and retailers, who are considered to be supporters of the party.

LDP ruling coalition partner New Komeito was also against the tax increase, calling it "mass taxation," the sources said.

Currently, tax accounts for 63.1 percent, or about ¥189, of the ¥300 cost of a pack of 20 cigarettes, according to Japan Tobacco Inc.

Some LDP members advocated raising the tobacco tax by ¥3 per cigarette, which would increase the price of a pack of cigarettes by ¥60. Health, Labor and Welfare Minister Yoichi Masuzoe and Finance Minister Shoichi Nakagawa also backed the tax boost.

The basic guidelines for formulating the fiscal 2009 budget, adopted by the Cabinet of Prime Minister Taro Aso last week, relaxed the spending cut principles in place since fiscal 2006.

The written policy indicated that the amount of social security expenses to be slashed can be smaller than the ¥220 billion, if the government manages to "secure stable financial resources to cover pension payments, medical expenses and other costs."