Prime Minister Shinzo Abe’s tax concession to his junior coalition partner raises the odds that he will call a rare double election this summer.
Abe’s Liberal Democratic Party agreed with Komeito on Saturday to keep the sales-tax rate on food and drink — excluding alcohol and dining out — at 8 percent when the levy is raised to 10 percent in April 2017. In yielding to Komeito on its billboard policy, Abe may be able to persuade his ally to agree to a snap lower house election on the same day as an upper chamber poll scheduled around the end of July.
Needing Komeito’s backing in the upper house election, Abe brushed aside the concerns of the Finance Ministry and fiscal hawks in his own party who say that the lower rates would have to be offset by spending cuts to reel in the world’s biggest debt burden. Victory in a double poll would mean Abe needn’t face voters again until 2019, opening the way for him to push ahead with his long-cherished goal of revising the postwar pacifist Constitution.
The reduced tax rates on food and drink are “one of many initiatives being rolled out to woo voters. If it works and public support looks good then, yes, he will hold double elections,” said Jeff Kingston, director of Asian Studies at Temple University in Japan. “If he can pull off a double landslide it will fast forward his plans to revise the Constitution, his main goal since entering politics.”
Earlier this year, Abe faced massive protests outside the Diet and his support rate plummeted as he pushed through bills to allow Japan to send troops to fight in overseas conflicts for the first time since World War II. However, any attempt to revise the top law — unchanged since its 1947 enactment under U.S. occupation — would likely draw even bigger demonstrations and further hurt an approval rating that is now recovering after the summer slump.
Only twice before — 1980 and 1986 — has Japan held such a double election. Abe has denied media reports that he is considering such a move, and Komeito chief Natsuo Yamaguchi said this month that holding polls on the same day was undesirable, according to Kyodo News.
Osaka Mayor Toru Hashimoto tweeted Friday that Abe’s agreement on the reduced tax rates was part of Abe’s push toward constitutional change, and a two-thirds majority in both houses next summer would put revision on the table.
A double election would be an “unnecessary gamble” if Abe wasn’t going for a formal revision of the top law, said Koichi Nakano, professor of politics at Sophia University in Tokyo.
Still, Tobias Harris, a political risk analyst with Teneo Intelligence, sees the agreement as a victory for Komeito. “It was essentially a quid-pro-quo for the party’s acquiescence to the Abe government’s controversial security bills, which sparked tensions between Komeito’s leaders and its pacifistic rank-and-file members,” he said in an email.
Abe’s LDP originally proposed an agreement only on fresh food, but the agreement with Komeito expands the lower levies to processed food. The reduced rates will cut state revenue by about ¥1 trillion a year.
Abe told reporters in Tokyo on Monday that the deal was the “best possible result.”
The prime minister is now unlikely to further delay the 2 percentage point hike in the overall tax hike, according to Koya Miyamae, an economist at SMBC Nikko Securities Inc.
The prime minister postponed it once when he called a snap election in December 2014. The reduced rates themselves will probably have little impact on an economy that has dipped between contraction and growth despite Abe’s efforts to spur it into life.
Compared with a blanket rise to 10 percent for all items, the decreased rates would see prices drop by just under 0.4 percentage point and an increase in real growth of about 0.2 point, Miyamae said in an emailed note. The lower tax rates mean the government would have to take further steps to cut spending due to the lower tax revenue, he said.
A source of revenue to pay for the lower rates will be secured by the end of March 2017, according to the Komeito website.
“The consumption tax increase was supposed to be covering ballooning costs of social welfare programs in an aging society,” Temple’s Kingston said. “But now it appears that the tax reductions will be offset by cuts in those programs that directly help those in need.”
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