“Since [the consumption tax rate] is only 5%, we are burdened with a budget deficit. We must decide — this is an extremely important period. If we think about the aging society, the road is narrowing.” He compared Japan’s consumption tax rate unfavorably with European consumption tax rates, but admitted that he didn’t know how the public would respond to a consumption tax hike. [This story was front page news in Asahi.] The idea is that the LDP and the Diet will debate comprehensive tax reform in the fall.
Yamamoto Ichita seems to have a better idea of how the public will respond — and finds it intolerable that some LDP members are willing to proceed with the tax hike even if it means an LDP defeat.
“In my thirteen years in politics, I have never met a politician ‘resolved to discard his Diet member’s badge at any time.”
The prime minister has now opened the flood gates on a debate between tax-hikers (many of whom happen to be zoku giin) and budget-cutters, the latter of which want to government to trim as much waste as possible from the budget before raising taxes. (Nakagawa Hidenao is probably the leading advocate of this school of thought, as in this post in response to the prime minister’s remarks.) Naturally the zoku giin don’t want to see “wasteful spending” trimmed — because it’s not wasteful to them.
In short, the prime minister will be attempting a tricky maneuver in the autumn, dealing a blow to the road tribesmen by getting his road construction plan written into law and then wheeling about to use a victory on the road construction (read: budget trimming) front to get a consumption tax hike. He will do all of this while dealing with a party full of backbenchers terrified that they will lose their seats in the next election. In order to execute this pirouette successfully, Mr. Fukuda has quickly assembled a project team on eliminating waste, headed by Sonoda Hiroyuki, to ” review [spending] thoroughly with an eye to reducing waste to zero.” According to Shukan Bunjun, the project team is staffed with abrasive reformist Diet members like Kono Taro who are bound to use the project team to antagonize bureaucrats and zoku giin alike as they review spending in four areas (public works, social security, energy and agriculture, and culture and technology) in search of savings. (An additional working group will focus on spending in another twelve ministries and agencies, including the ministries of foreign affairs and defense.) I wish Mr. Kono and company success in their endeavor, but I cannot help but wonder whether this project team is too little, too late.
It sounds like a recipe for catastrophic defeat, especially when discontent over North Korea is thrown into the mix. It is becoming less and less likely that Mr. Fukuda will survive the year. Moreover, by introducing the consumption tax question, Mr. Fukuda is poisoning the well for the post-Fukuda era, making it difficult for tax-hiker Yosano Kaoru to win election as his replacement.
Mr. Fukuda has not only triggered a fierce debate within the LDP; he has also given encouragement to the DPJ, which is desperately in need of LDP mistakes (just as the LDP is in desperate need of DPJ mistakes — I leave it to you to determine which needs the other’s mistakes more). Ozawa Ichiro jumped on the prime minister’s remarks, arguing along lines similar to Mr. Nakagawa’s that wasteful spending must be eliminated first before having a debate about tax reform.