Time for the Diet to act

There remains less than a month before the current Diet session is scheduled to end on June 21. Deliberations have started in a Lower House special committee on the tax and social welfare reform. Among the bills before the committee are two related to Prime Minister Yoshihiko Noda’s plan to raise the consumption tax from the current 5 percent to 8 percent from April 2014 and to 10 percent from October 2015 — a plan on which Mr. Noda says he will stake his political life. But at this stage there is no prospect that the two bills will be enacted by the end of the current session.

Other important bills have yet to be enacted, including a bill to authorize the flotation of bonds for the fiscal 2012 budget and a bill to establish a new nuclear regulatory authority to replace the Nuclear and Industrial Safety Agency, which is part of the pro-nuclear power trade and industry ministry. The Supreme Court in March 2011 found the current Lower House seat distribution unconstitutional and there is the strong possibility that it will declare null and void the results of the next Lower House election if it is carried out without the reapportionment of the seats. But the ruling and opposition blocs have failed to reach agreement on rectification of the situation.

Although Mr. Noda appears to be preoccupied with enacting the consumption tax rate hike, the Diet has a more important task and that is to immediately pass the bill to float bonds for the fiscal 2012 budget, which has already been enacted. Because the budget depends on deficit bonds for 42 percent of its revenues, the government will not be able to fully execute the budget. Thus the delay of the enactment of the bond flotation bill will have serious consequences.

During the discussions on the reform of the tax and social welfare system, such issues have emerged as whether it is appropriate to raise the consumption tax rate in the midst of continuing deflation and how to rectify the regressive nature of the consumption tax, which disproportionately affects low-income people. Given the weak economic recovery, the first point is particularly important. During the Lower House special committee interpellation, it was pointed out that doubling the consumption tax from the current 5 percent to 10 percent would mean a tax increase of ¥13.5 trillion. Mr. Noda has not given sufficient consideration to the possible negative impact this will cause to the economy. His tax plan could kill the Japanese economy.