The government and the ruling Liberal Democratic Party agreed Friday to a watered-down plan on road-related tax revenues that will move only the money not allocated to road construction projects into the general expenditures category.
The plan says the government will only put surplus road-tax revenue into general expenditures. Opponents of the plan got the government to promise in the plan that it will craft a medium-term blueprint for national road construction.
“Deciding on the reform is just a start because much will depend on how much the government can limit construction spending in the mid-term,” said Koichi Haji, chief economist at NLI Research Institute. “It’s hard to determine the feasibility of the plan right now.”
The failure to move all of the money, about 3.5 trillion yen a year, into the general expenditures category is a major setback in Prime Minister Shinzo Abe’s plans to cut mounting debt, experts said.
The plan, which was to make Abe look like a decisive reformer, has ended up showing an inability to contain opposition within his own party, the experts said.
“It looks like Abe is going back to the old days when politicians got consensus within the party to make policy,” Haji said.
“His style is definitely different from (former Prime Minister Junichiro) Koizumi’s style, as he pushed through his policies regardless of how much his political enemies criticized him.”
The plan, approved by the Cabinet later in the day, is for the government to begin making legal changes in fiscal 2008 to revise the system of allocating all the revenue from road-related taxes to road construction.
“I will continue to work on the issue so that the people can say the decision is really good for them,” Abe told the meeting of ministers and LDP leaders.
Abe told the Diet in his inaugural address in September that he would reform the use of road-tax revenues. However, the issue seemed to disappear after the speech.
The prime minister raised it again after he dropped in the polls, the result of his decision to allow 11 former postal reform rebels back in the party.
The LDP wants to get a large majority in the House of Councilors election in July, and members are expecting a popular leader to give them a big win.
There has been strong opposition to road tax reform from many ruling party politicians with links to the construction industry and prefectural governors. The auto industry is also against the plan and has been lobbying for instead lowering road-related taxes, particularly on gasoline.
The current system of channeling road-related tax money into road projects has not been changed since 1954 partly because these groups have been too powerful.
Abe had already claimed victory over them Thursday evening.
“No one could achieve the reform for 52 years. But I brought it through for the first time,” he told reporters.
Rapid economic growth in the 1970s and 1980s drove the government to build a large number of highways, bridges and buildings. Road-related taxes are now 1.2 to 2.5 times higher than they were in the 1970s.
Mounting public pressure to curb massive overspending on public projects combined with a long economic slump and a growing budget deficit has forced the government to look at the system.