Set the stage for deliberations on consumption tax hike bill
The government has adopted a bill to raise the consumption tax rate at a Cabinet meeting and submitted it to the Diet. We commend Prime Minister Yoshihiko Noda for working hard to realize the government decision within the current fiscal year, and sticking to his personal pledge from beginning to end.
Noda renewed his call to opposition parties to cooperate in getting the bill passed. "If we look at this issue from a grand perspective, this is a good chance for us to join forces with the opposition bloc over policies," he said at a press conference Friday.
However, there is no prospect that the government will be able to pass--or even start Diet deliberations on--the bill, a step on which Noda openly said he would stake his political life.
As an initial step, the government and the ruling Democratic Party of Japan must make utmost efforts to create an environment in which the main opposition Liberal Democratic Party and New Komeito will agree to enter negotiations on the bill.
Consider multiple tax rates
The bill's main pillar is to raise the consumption tax rate in two stages to 8 percent in April 2014 and to 10 percent in October 2015.
Eighteen years have passed since the Diet decided to raise the consumption tax rate to the current 5 percent. Over that time, the outstanding debt of both the central and local governments has ballooned due to deteriorating fiscal conditions. This debt is projected to reach about 900 trillion yen--a record high--at the end of fiscal 2011, which ends Saturday.
Deep spending cuts will be essential for fiscal reconstruction, but this cannot be achieved simply by streamlining administrative bodies and services.
In the end, it will be unavoidable to raise the rate of the consumption tax, which provides a stable source of revenue for the government.
The bill's supplementary provision stipulates that the government will carry out measures aiming for a nominal economic growth rate of about 3 percent and a real economic growth rate of about 2 percent, as an elastic clause linking the tax hike to the state of the economy. This makes an economic turnaround a condition for implementing a higher consumption tax rate.
The prime minister stated these figures in the clause are not preconditions for the tax hike. We think Noda's position is appropriate.
Over the past 20 years, the country's nominal growth rate has remained almost zero. Given this, it will not be easy to achieve such growth targets. It is of course necessary for the government to try to generate economic growth. However, it must not allow opponents to exploit these figures to justify their attempts to stop the tax increase.
As steps to alleviate the burden that a higher consumption tax rate would impose on low-income earners, the bill incorporates a so-called negative income tax, which combines tax exemptions and benefit provisions. It also sets a limit on the total amount of social security-related payments to be shouldered by low-income earners.
Though some DPJ members are calling for taking bolder measures, it is important that the government not expand such systems to an unnecessary scale. Doing so would leave the door open to characterizing them as dole-out policies.
European countries have introduced a so-called multiple tax rate system, under which tax rates on food and other daily necessities are kept low to lesson burdens on family finances. In many countries, tax rates are set at zero or extremely low for newspapers and books. We believe implementing a multiple tax rate system is worth consideration in Japan, too.
When the Cabinet gave approval to the consumption tax hike bill, Shizuka Kamei, the head of the People's New Party, declared his party would split from the ruling coalition.
However, Shozaburo Jimi, state minister for postal reform and financial services, and a majority of other PNP members refused to obey Kamei's decision and opted to stay with the Noda administration. The de facto split of the DPJ's junior ruling coalition partner at this point was inevitable.
DPJ must back off boldly
Some members of the group led by former DPJ leader Ichiro Ozawa also have bristled at the Cabinet decision on the tax increase, handing in letters of resignation from their government and party posts. The incident has revealed afresh the depth of the split within the DPJ.
A politically key phase of the consumption tax issue will come when the bill is put to a vote in the House of Representatives.
The DPJ leadership should take every possible step to tighten unity within the party. The party also must do its utmost to earn the backing of the LDP and Komeito, as this will be essential for the bill's legislation.
If the two major opposition parties oppose the bill in lower house deliberations, chances would be very slim of the LDP and Komeito throwing their support behind the bill in the House of Councillors.
The opposition parties have been strongly opposed to DPJ plans to create a new pension program aimed at guaranteeing a minimum pension benefit. This program would require enormous revenue sources.
The DPJ initiative to abolish the medical care system for people aged 75 and older--a system introduced when the LDP and Komeito were in power--has become bogged down because of a backlash from local governments that favor keeping the system intact.
These were two key DPJ policy pledges for the 2009 general election in which it came to power. The party, nevertheless, should not be fastidious about implementing them. The DPJ should instead be flexible enough to decide to offer concessions to the opposition on these matters, including dropping them entirely or making drastic modifications.
LDP must show flexibility
Meanwhile, consultations between the DPJ, the LDP and Komeito have led to agreements on establishing a new child benefit program to replace the current child-rearing allowance plan, as well as a bill to revise the Postal Service Privatization Law.
Broadening consensus-building efforts among the parties will surely help quicken moves to start Diet deliberations on the consumption tax bill.
The DPJ and the LDP are in step as far as the idea of raising the consumption tax rate to 10 percent is concerned. The parties must not miss the opportunity that is before their very eyes.
LDP President Sadakazu Tanigaki still insists the lower house should be dissolved for a general election before the bill becomes law.
However, developments that follow the lower house dissolution after passage of the bill will not necessarily be disadvantageous to the LDP and Komeito. In fact, many senior LDP legislators hold this line of thought.
Former LDP Secretary General Bunmei Ibuki has argued what is necessary for the benefit of the public "must be done as swiftly as possible," prodding the party leadership to begin talks with the government and the DPJ about what changes should be made to the consumption tax hike bill.
We think the LDP should come out with its own counterproposal without delay on the issue and participate in consultations between the ruling and opposition parties. It is of utmost importance that the DPJ, the LDP and Komeito build up relations of mutual trust during their consultations.
(From The Yomiuri Shimbun, March 31, 2012)