As the Liberal Democratic Party prepares to retake the helm of government next week, an internal body that once exerted great control over critical tax issues through behind-the-scene talks is staging a comeback as well.
The Tax System Research Commission, which once monopolized decision-making on tax-related policies, launched its first full session Friday following Sunday’s election victory by the LDP, with party President Shinzo Abe in attendance.
“We gained enthusiastic support during the election after we pledged to boost the economy,” Abe said at the meeting. “I want the tax panel to make decisions in light of this point.”
Once the LDP dismantles a tax panel set up by the Democratic Party of Japan-led government, all power over decision-making on taxes will be concentrated in its own commission, which was long criticized for lacking transparency.
“(The commission) makes most decisions in closed-door negotiations,” Tomoaki Iwai, a political science professor at Nihon University and noted expert on vested interests in politics, told The Japan Times. “The old-style LDP politics is coming back.”
This throwback is troubling to Iwai, who would prefer to see a government tax panel, not one under the wing of a political party, make decisions on tax-related issues, to enhance transparency.
LDP chief Akira Amari said the tax commission needs to propose tax reforms by late January so related bills can be submitted to the Diet by early March.
Later Friday, commission Chairman Takeshi Noda told reporters that among the top items on the agenda for the panel is deciding the kinds of tax breaks, if any, on housing and automobile-related items, in response to the drop in consumption expected after the sales tax is raised to 8 percent in 2014.
Noda said the commission will also hold talks with junior coalition partner New Komeito, which has called for lower sales taxes on daily necessities such as food.
Noda also said the commission will consider special tax measures to promote investment in research and development by companies in the private sector.
“People may have the wrong idea (about the commission), believing we are a ‘zoku-giin’ (policy tribe),” Noda said, using a derogatory word for lawmakers with vested interests in certain industries.
But the LDP’s tax commission does, in fact, play a crucial role as “hatchet man,” turning down tax-related requests from numerous party lawmakers and government ministries, Noda said.
“That’s where the politicians play a role,” Noda said. “If you accept all the requests, you can’t compile a tax reform plan or a (government) budget,” he said.
When the LDP was in power, the commission held intensive yearend sessions on tax issues, in particular on special breaks for various industries.
But most of those sessions were closed to the media and public. In many cases only a handful of top “inner” members made the final decisions on controversial tax issues.
Traditionally, LDP-led governments have rubber-stamped all of the tax panel’s decisions. The commission was considered “untouchable,” even to the prime minister.
Critical of this opaque, supragovernmental process, the DPJ set up a more powerful tax panel under the government after the party came to power in 2009. Sessions of this panel were open to the public through live webcasts.
However, DPJ members who weren’t on the panel grew frustrated at their lack of say, and another tax panel was set up within the party, once again muddying decision-making on tax issues.
Although the LDP’s commission drew criticism for its exclusivity, it was able to reject tax break and tax hike requests by stifling opposition from frustrated rank-and-file lawmakers.
In 1989, when the government first tried to introduce the consumption tax, senior LDP tax commissioners sided with the Finance Ministry, which was promoting the unpopular levy, which is now considered an essential revenue stream feeding Japan’s ailing state coffers.
“Lawmakers chosen by the people should hold discussions (on tax issues). If the party fails to do so, it means we have renounced our duties,” LDP Secretary General Shigeru Ishiba told a news conference on Friday.
“If you criticize (the apparent opaqueness of the commission), you should specifically point out what tax reforms have been distorted in an arbitrary manner,” he said.
Tax revenue fall to hurt
Tax revenue for fiscal 2012 is expected to fall for the first time in three years due to sluggish corporate earnings, government officials said Thursday, suggesting the new administration to be led by Shinzo Abe can’t count on the revenue to finance an extra budget.
The Liberal Democratic Party, headed by Abe, who is scheduled to become the new prime minister next week, and its smaller ally, New Komeito, are planning to draw up a supplementary budget of around ¥10 trillion for the current fiscal year through March 31 to boost the country’s struggling economy.
The Finance Ministry has already told the LDP and New Komeito, which together won a two-thirds majority in the 480-seat House of Representatives in Sunday’s general election, that it is no longer possible to think of using a tax revenue surplus to fund the extra budget, according to the officials.
The new government, which is set to be formed next Wednesday, will be forced to borrow more from the debt market than earlier thought. It is almost certain the issuance of government bonds will amount to as much as several trillion yen.
The ministry expects tax revenue for fiscal 2012 will be less than the fiscal 2011 total of ¥42.83 trillion ($510 billion).
The ministry had expected that the current fiscal year’s tax revenue would turn out to be more than the initially estimated ¥42.35 trillion. But the officials said this is now unlikely as the global economic downturn has struck Japanese firms harder than the ministry had projected.
In fiscal 2010 and fiscal 2011, tax revenues exceeded the ministry’s initial projections and the surpluses were used by the government led by the Democratic Party of Japan to finance extra budgets.