Collusion on sales tax hike
(From The Japan Times June 28 issue)

The Democratic Party of Japan together with the Liberal Democratic Party and Komeito on June 26 passed through the Lower House bills for the so-called unified reform of the tax and social security systems.

The passage of the bills is problematic as both a political process and an economic policy. Many voters who supported the DPJ in the 2009 Lower House election will regard the consumption tax raise plan as a betrayal. The DPJ’s election manifesto had made it clear that the party would reallocate the budget to create funds for promised measures and refrained from mentioning any plan to raise taxes. On the basis of the manifesto, a majority of people voted for the party, believing that it would end the rule by unelected bureaucrats and eliminate waste in government. They hoped for a departure from the old LDP type of politics. But what happened June 26 was nothing more than collusion between the DPJ and the LDP.

Prime Minister Yoshihiko Noda says that the bills are for the sake of reform. But because of his obsession with the consumption tax hike, he postponed the dismantling of entrenched bureaucratic interests and eliminating government waste. Once the tax increase is ensured, it will be business as usual for the bureaucracy without economizing or carrying out reform.

Mr. Noda also says that the tax raise is for maintaining the social security system. But he has failed to present a plan to drastically reform the system to make it truly sustainable while ensuring that the needy receive assistance without fail.

Given the government’s huge debts, tax increases in the future are most likely inevitable. But the consumption tax hike plan in the midst of continued long-term deflation carries the danger of wrecking the economy. Consumers will tighten their purse strings, the regressive nature of the tax will severely affect low-income people and many small businesses will go bankrupt because they do not have the power to pass the raised consumption tax on to consumers.

Mr. Noda stresses the importance of “politics that can make a decision.” But he is just acting as a mouthpiece of the Finance Ministry and his decision is in the wrong direction. He should dissolve the Lower House to let voters have a say in the matter.

日本語の抄訳はウィークリ7月7日号のP18に掲載されています。