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Kan wades deep into tax hike fray

DPJ chief gambles amid turmoil in Europe, but will public listen?

by Alex Martin

Despite misgivings in his own party, Prime Minister Naoto Kan has pledged to raise the 5 percent consumption tax in a few years to fund snowballing social security costs and avoid a fiscal crisis like the one that engulfed Greece.

“We decided to break the ice and mention it in our manifesto,” the Democratic Party of Japan leader said last week, calling for full debate on tax reform and crediting an opposition plan to double the sales tax to 10 percent.

Even when the dangers of ignoring fiscal reform are obvious, talk of raising taxes is a political taboo because the parties that attempt it usually get slapped in subsequent elections.

But experts said Kan’s bold move was backed by the DPJ’s newfound popularity since he took over from Yukio Hatoyama. He is confident he can win voters over, given national concern that a fiscal meltdown could devastate the economy for years, they said.

“Considering the nation’s poor fiscal health, it’s quite obvious that a tax hike will eventually be necessary,” said Satoru Matsubara, an economics professor at Toyo University.

“So it was a question of finding the right timing,” he said, adding that Kan’s firsthand experience monitoring the economy as finance minister in the previous Cabinet lends a sense of urgency to the situation.

That urgency may be justified. Kan has voiced frequent warnings about the nation’s enormous public debt since Greece entered crisis earlier this year. Now that the crisis has forced fiscal reform to spread through Europe, Kan said Tuesday he would stake his political career on the issue.

A consensus on a tax hike has emerged on both sides of the political divide.

The conservative Liberal Democratic Party, the leading opposition party, said June 17 it would campaign on the need to double the consumption tax to 10 percent. The DPJ said it might use that figure as a reference point.

Before Kan broached the issue, a majority of voters appeared surprisingly supportive of raising taxes.

According to a June 8-9 Kyodo News survey, 60 percent of respondents backed a consumption tax hike while 40 percent opposed it. This may have emboldened Kan.

But once he started openly pushing the issue, voters reacted quickly and negatively, according to a different poll.

An opinion poll conducted by the daily Asahi Shimbun on Sunday and Monday said 46 percent of respondents favored a tax hike and 45 percent opposed it. There was no Kyodo News poll available for comparison.

No margin for error was provided.

An opinion poll the Asahi Shimbun conducted on Kan’s new Cabinet from June 12 to 13 meanwhile said the support rate had fallen to 50 percent from 59 percent.

Kan’s remarks on the consumption tax “have alienated people who oppose a consumption tax increase,” the Asahi Shimbun concluded.

History has shown that just talking about the issue can cost a government dearly. The LDP suffered in the 1979 general election when the government led by Prime Minister Masayoshi Ohira said it planned to introduce a consumption tax by the end of fiscal 1980.

After the LDP rammed the Consumption Tax Act through the Diet in 1988 to launch a 3 percent consumption tax under Prime Minister Noboru Takeshita, the LDP lost its majority in the Upper House election in 1989.

Nine years later, when the LDP hiked the consumption tax to 5 percent, it suffered another defeat in the 1998 Upper House election, forcing Ryutaro Hashimoto to resign as prime minister.

If the ruling DPJ fails to win a majority in the July 11 Upper House election, it will have a difficult time getting government-sponsored bills through the Diet.

The DPJ’s coalition partner, Kokumin Shinto (People’s New Party), opposes the tax hike. The Social Democratic Party, which deserted the ruling coalition over the plan to relocate a U.S. base in Okinawa, is also opposed.

Matsubara of Toyo University said that considering its popularity and the number of candidates it is fielding, Yoshimi Watanabe’s Your Party stands to win the most from any disenchantment with the DPJ.

Your Party has emphasized that the government should focus on eliminating waste, such as by reforming the civil service and selling off state assets, before broaching the subject of tax reform.

But with still roughly two weeks before the Upper House election, it remains unclear which party will come out on top.

Former DPJ Secretary General Ichiro Ozawa was heavily involved in writing up the platform for last year’s triumphant general election but did not put tax reform on the agenda. It thus appears the DPJ is changing course from a year ago, when it became the first opposition party to effectively take control of government in about 50 years.

“I believe Kan wanted to distance himself from Ozawa and Hatoyama once he took over the party,” said Koichi Nakano, political science professor at Sophia University in Tokyo. “But the DPJ’s main task now is to convince the voters of the necessity of a tax hike while not appearing to be wavering on policy,” he said.

Ozawa disagrees

MINOBU Yamanashi Pref. (Kyodo) Ichiro Ozawa, who stepped down this month as secretary general of the Democratic Party of Japan but is still seen as a power broker, complained Thursday about the government’s recent focus on a consumption tax hike.

“I think our points for the previous Upper House election and Lower House election were that we would not raise the consumption tax for a while. I have not changed my view,” he told reporters on the campaign trail for the Upper House election.

He was apparently referring to Prime Minister Naoto Kan’s call for discussing a possible hike in the tax, with the Liberal Democratic Party’s proposed rate of 10 percent as “one of the references.”

Ozawa stepped down from the DPJ’s No. 2 post over a money scandal.