Collusion on consumption tax hike

The Democratic Party of Japan together with the Liberal Democratic Party and Komeito on Tuesday passed through the Lower House bills for the so-called unified reform of the tax and social security systems. In the voting for a bill to raise the consumption tax — a pet idea of Prime Minister Yoshihiko Noda — 57 DPJ members, including former DPJ chief Ichiro Ozawa and former Prime Minister Yukio Hatoyama, voted “no” and 16 other DPJ members refrained from voting or were absent (one of them sick).

The passage of the bills is problematic as both a political process and an economic policy. Many voters who voted for the DPJ in the 2009 Lower House election will regard the consumption tax raise plan a betrayal. The DPJ’s election manifesto had made it clear that the party would reallocate the budget to create funds for promised measures and refrained from mentioning any plan to raise taxes. On the basis of the manifesto, a majority of voters voted for the party, believing that it would end rule by unelected bureaucrats and eliminate waste in government. They hoped for a departure from the old LDP type of politics. But what happened on Monday was nothing other than collusion between the DPJ and the LDP.

Mr. Noda says that the bills are for the sake of reform. But because of his obsession with the consumption tax hike, he postponed the dismantling of intrenched bureaucratic interests and eliminating government waste. Once the tax increase is ensured, the bureaucracy will continue business as usual without economizing or carrying out reform.

Mr. Noda also says that the tax raise is for maintaining the social security system. But he has failed to present a plan to drastically reform the system to make it truly sustainable while ensuring that the needy receive assistance without fail.

He said that the plan to raise the consumption tax from the current 5 percent to 8 percent in April 2014 and to 10 percent in October 2015 does not violate the manifesto because the current Lower House term ends before April 2014. But many voters will see it as political sophistry.

Given the government’ huge debts, tax increases in the future are most likely inevitable. But the consumption tax hike plan in the midst of continued long term deflation carries the danger of wrecking the economy. Consumers will tighten their purse strings, the regressive nature of the tax will severely affect low-income people and many small businesses will go bankrupt because they do not have the power to pass the raised consumption tax on to consumers. In addition, a 2.1 percent surcharge will be imposed on income tax for 25 years from January 2013 and a ¥1,000 surcharge on the residential tax for 10 years from June 2014 for the Tohoku reconstruction.

Mr. Noda stresses the importance of “politics that can make a decision.” But he is just acting as a mouthpiece of the Finance Ministry and his decision is in a wrong direction. He should dissolve the Lower House to let voters have a say in the matter.