Facing little resistance, the Upper House passed the ¥96.7 trillion fiscal 2016 budget Tuesday as the opposition parties kept their focus on Prime Minister Shinzo Abe’s next problem: what to do about the consumption tax hike slated for April 2017.
The record-setting budget saw social security spending hit ¥31.97 trillion, up 1.4 percent from the previous year, and defense outlays surpass ¥5 trillion for the first time ever, climbing 1.5 percent.
Abe didn’t skimp on defense despite the nation’s massive public debt, which at 230 percent of gross domestic product makes it the worst among all developed nations.
But for fiscal 2016, the government plans to reduce new bond issuance to ¥34.43 trillion, down ¥2.5 trillion from the previous year, in light of higher tax revenues from both the central and local governments.
Abe boasted that his administration has managed to simultaneously reduce debt dependency and improve the economy via higher government spending under Abenomics, his economic growth program.
During a news conference later in the day, Abe also emphasized that his government has increased spending to boost capacities at day care centers to help households raising children.
For the remainder of the Diet session, which closes in June, the biggest item on the agenda is expected to be ratification of the Trans-Pacific Partnership deal and related bills. The Diet is expected to begin deliberating the free trade pact legislation on April 5.
But lawmakers have already shifted focus to this summer’s pivotal Upper House election, which could make it easier for Abe to amend the Constitution, and whether he will again delay the second stage of the consumption tax hike scheduled for 2017.
Abe, whose decision is expected around the Group of Seven summit in late May, is reportedly considering another delay.
The first stage raised the sales tax to 8 percent from 5 percent in April 2014, and the second stage was to complete the levy’s doubling to 10 percent in October 2015.
In November 2014, Abe postponed the second stage until April 2017 and asked the public to endorse his decision by dissolving the Lower House and calling a snap election. His ruling Liberal Democratic Party won in a landslide.
Now speculation is rife that Abe, driven by his quest to revise the Constitution, will double down on the tax delay tactic by arranging a rare simultaneous election of both the Upper and Lower houses.
During Tuesday’s news conference, Abe flatly denied such speculation, though political observers remained skeptical.
“I’m not thinking about dissolving the Lower House. I don’t even have such an idea in the back of my mind,” he said.
Right now the opposition appears unprepared for a double election. This has fueled speculation that Abe may dissolve the Lower House at the same time the Upper House election is due, resulting in a double election.
According to the latest Kyodo News poll, public support for the new Democratic Party, the largest opposition force, stood at 8 percent, far behind the 41.3 percent of Abe’s LDP.
But in dissolving the Lower House in 2014, Abe pledged not to postpone the tax hike again to maintain international confidence in Japan’s ability to manage its snowballing debt.
He also recently emphasized that the tax hike will only be postponed in the event of an extraordinary economic shock like the 2008 global financial crisis or the March 2011 Tohoku quake, tsunami and nuclear crisis.
However, the slowdown in the global economy — including China and Europe — has bolstered calls for Japan to spend more now to help prop up global growth, and focus on fiscal rehabilitation later.
Earlier this month, Abe made a show of meeting with Nobel Prize-winning economists Joseph Stiglitz and Paul Krugman, who both urged him not to raise the sales tax. The meetings were seen as possible maneuvering by Abe to find political cover for a second tax hike delay.