Prime Minister Yoshihiko Noda and former Democratic Party of Japan chief Ichiro Ozawa met on Wednesday to discuss Mr. 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.
In the meeting, which lasted 1½ hours, Mr. Noda tried unsuccessfully to persuade Mr. Ozawa to support his tax plan. Mr. Ozawa leads the largest intraparty group within the DPJ, with more than 100 lawmakers.
If Mr. Noda cannot win Mr. Ozawa’s support, it will be difficult for him pass his plan in the Lower House.
The meeting made it clear that Mr. Ozawa is not against the idea of raising the consumption tax. What he opposes is the timing of Mr. Noda’s plan. Mr. Noda should give adequate consideration to Mr. Ozawa’s concerns.
If he pushes ahead with his tax hike, there is a strong possibility that it will kill incentives for government bureaucrats to carry out administrative and other necessary reforms, including the breaking up of their vested interests. If they obtain adequate funding through the tax increase, they will just carry on as usual.
In the meeting, Mr. Noda stressed that there is no time left to carry out the state’s financial reconstruction and called on Mr. Ozawa to support his tax plan.
Mr. Ozawa countered that there are many things the government must do before increasing the consumption tax.
One of his points is that before raising the consumption tax, political leaders must put an end to the wasteful use of public money and change the situation in which bureaucrats have the upper hand in developing policies.
Another point is related to whether it is correct to raise the consumption tax in view of the current economic situation. Mr. Ozawa pointed out that doubling the consumption tax rate to 10 percent will mean a tax increase of nearly ¥13 trillion, and said that it is unreasonable to ask people to bear such a burden when the economy is suffering from deflation.
Mr. Ozawa also accused Mr. Noda of being singularly obsessed with his tax plan and forgetting the DPJ’s social welfare reform proposal. The points raised by Mr. Ozawa are persuasive.
If Mr. Noda, facing Mr. Ozawa’s opposition, opts to get support from the Liberal Democratic Party to realize his tax hike, people will regard it as a complete betrayal of the promise the DPJ made in the 2009 Lower House election.