Tax hike gambit may end up hurting DPJ

by Malcolm Foster

The Associated Press

Normally, proposing a tax hike is considered a sure way to lose an election.

But Prime Minister Naoto Kan is saying that’s what Japan needs to rein in its bulging national debt in the campaign leading up to this Sunday’s Upper House election.

The poll, in which half the seats in the 242-member Upper House are up for grabs, is viewed as a referendum on the Democratic Party of Japan’s 10 months in power since defeating the long-ruling Liberal Democratic Party. The DPJ has promised to cut wasteful spending and bring greater transparency to politics.

In office just a month after his predecessor abruptly resigned, Kan has put an emphasis on repairing the country’s strained finances.

A social progressive and fiscal hawk, Kan has declared that Japan needs to reform its tax structure and should seriously consider raising the consumption tax from 5 percent to 10 percent within two to three years. He has warned that if Japan doesn’t take dramatic steps soon, it could face a similar crisis to Greece — a comparison experts say is an exaggeration.

“What can we do to prevent a situation like Greece? We must slash wasteful spending, while promoting growth,” Kan said recently. “But we also need to discuss the overall tax system. That’s the context of our proposal.”

Kan appears to be betting that many voters are resigned to higher taxes as the population shrinks and ages and the public deficit grows to twice Japan’s GDP.

But his gamble may end up hurting the DPJ’s chances Sunday as his Cabinet’s initially high approval ratings have rapidly declined with all the tax talk.

“Kan felt this wouldn’t be a point of contention, but he didn’t take it seriously enough,” said Naoto Nonaka, a professor of political science at Gakushuin University in Tokyo. “There’s an order to doing these things, and this consumption tax thing came out of the blue.”

This weekend’s election almost certainly won’t threaten the DPJ’s grip on power since it controls the more powerful Lower House that chooses the prime minister.

But poor results could undermine the party’s attempts to pass legislation and could affect the course of governing for the next three years, when the next Lower House election must be called, if it isn’t called sooner.

Many analysts are predicting the DPJ, along with its tiny coalition partner, Kokumin Shinto (People’s New Party), will fail to keep their slim majority of 122 in the Upper House, forcing the DPJ to forge ties with other partners.

Kan, whose seat is in the Lower House, has set a target of hanging onto the DPJ’s 54 contested seats, but pundits say even that will be difficult given his sinking poll ratings.

Aside from truly abysmal results, Kan’s job is most likely safe as the DPJ wants to maintain some semblance of continuity since there have been five new prime ministers in the past four years.

The main opposition party, the LDP, a conservative, probusiness party that ruled for most of the postwar period, is projected to pick up about five seats to raise its total to 75. The party has aggressively bought ads shown during World Cup matches.

The upstart Your Party made up of recent LDP defectors is predicted to win eight to 10 seats. A proponent of smaller government and reining in the bureaucrats, the group could become a potential coalition partner for the DPJ, analysts say.

Kan has shown political shrewdness by effectively siding with the LDP-proposed hike of the consumption tax to 10 percent, effectively neutralizing opposition from the conservatives. Other political parties are divided on the prospect of higher taxes.

The DPJ came to power in last August’s Lower House election during a time of high hopes for change. Their attempts to cut costs through public budget screenings, where lawmakers grilled bureaucrats about spending proposals, was a big hit with the public.

But the previous prime minister, Yukio Hatoyama, left many bitterly disappointed with his failure to keep a campaign promise to move a U.S. Marine base out of Okinawa and for getting mixed up in a funding scandal. The DPJ has also been slow to deliver on pledges to make expressways toll-free, making some voters think the party is all talk and no action.

After the fiasco created by Hatoyama over U.S. Marine Corps Air Station Futenma, Kan has said he will honor an agreement with Washington to move the base to a less crowded part of northern Okinawa Island despite fierce local opposition.