Last week, the ruling coalition of the Liberal Democratic Party and Komeito finally agreed not to increase the consumption tax rate for food. The tax is supposed to rise to 10 percent in April 2017, and the coalition is worried about how the change will affect their chances in next year’s Upper House elections. Komeito has insisted that food be exempt from the hike, and the LDP, realizing it needs the large block of voters Komeito can deliver, has finally come around, even though it means government revenues will be ¥1 trillion less than what they would have been without the exemption.
The consumption tax is regressive, meaning, in effect, that it imposes a heavier burden on people at the bottom of the income pyramid than it does on people nearer the top. That’s because poorer citizens spend a larger portion of their income on necessities while richer citizens spend less. Many developed countries exempt food from value-added and sales taxes, or tax them at a lower rate, but the decision to do so tends to be political in nature. Economists, for the most part, think that exempting food from fixed sales taxes benefit richer people, because while they do spend less of their income on food, they spend more on food in absolute terms, and the revenue that governments lose due to this discount has to be made up in other ways. In Japan’s situation, the ¥1 trillion that will no longer be flowing into state coffers due to the food exemption will be made up by getting rid of current programs that directly support low-income households.
But if you based your knowledge of the issue exclusively on what’s written in Japan’s vernacular newspapers, you wouldn’t know much about this economically grounded opposition to the exemption. The pattern for reporting has been consistent, regardless of the overall editorial bias of a particular publication. All the papers supported the implementation of the consumption tax, as well as the series of subsequent rate hikes. They have also wholeheartedly backed Komeito in its bid to exempt food from the next rate hike.
One person who finds this consistency suspicious is media critic Chiki Ogiue. On a recent episode of the TBS Radio show “Session 22,” he talked about a survey that he and economist Yasuyuki Iida conducted for the weekly edition of Spa!. Noting that almost every newspaper had surveyed the public about the food exemption and received unsurprising results — the majority wants it — Ogiue thought it strange that none had queried experts, so he sent questionnaires to 1,596 economists and received 176 replies, an “unusually high return,” he thought, since economists are notorious for not replying to surveys. About 60 percent said they oppose the exemption, while 14-20 percent support it. Ogiue, in fact, didn’t expect the support-camp rate to be that high, though the reasons ranged from “Because other countries do it” to “If it boosts consumption, then that’s an advantage.” In other words, support for the exemption was qualified.
In explaining opposition to the exemption, Ogiue cited “Engel’s coefficient,” which is the basis for the regressive tax theory: Poorer people spend a larger portion of their income on food than richer people do. But in Japan, richer people spend a higher percentage of their income on food than richer people in other countries do — almost the same rate as poorer people — so the negative effects of the food exemption are even greater in Japan. Economists instead recommend that the government just give more money to poorer people, which will not only counteract the regressive effects of the tax hike but also stimulate the economy, since lower-income people will definitely spend that money.
These are not difficult concepts, so why has the print media avoided talking about it? Ogiue says the Japan Newspaper Publishers and Editors Association (NSK) wants the ruling coalition to apply the exemption to periodicals, too, which is the situation in many European countries and some states in the U.S. Though newspaper circulation in Japan has been dropping steadily for more than 10 years, it decreased the most in 2013 after the previous consumption tax hike went into effect. According to a post by financial writer Seiji Ogasawara on the Blogos website, newspapers will have to absorb the next tax hike so as not to lose more readers and, as a result, advertising revenues. Ostensibly, publishers are requesting the exemption in order to safeguard democracy, which requires a free press and, presumably, affordable newspapers, but in actuality, publishers undermine democracy when they don’t report information relevant to a given issue, such as the real economic effect of the food exemption.
Komeito is attempting to rebrand itself as the party of the poor after it compromised its credentials as the party of peace by supporting the LDP’s security bills, which makes it possible to send the Japan Self-Defense Forces overseas to fight. So Komeito thinks the LDP owes it one, and is calling in the favor on the food exemption. Otherwise, the LDP won’t be able to count on Soka Gakkai followers, who tend to vote for Komeito since the party is affiliated with the religious group. What Ogasawara finds particularly hypocritical about NSK’s campaign is its refusal to budge on the Resale Price Maintenance Law, which allows publishers to set prices that can’t be changed by distributors or retailers.
NSK knows Komeito holds the key to deciding whether or not newspapers are included in the exemption, so its member companies are careful not to upset the party by reporting anything that might harm its interests, such as economists’ reservations about the exemption. In turn, Komeito knows newspapers will be nice to them, editorially speaking, which may explain why last Monday, the Asahi Shimbun dedicated two articles, including one on the front page, to the ruling coalition’s announced “intention” to exempt newspapers from the tax hike, as long as they meet “certain conditions.” You can bet the newspapers will do the best they can.