The ruling Liberal Democratic Party and its coalition partner, Komeito, are seeking voter support for the proposed consumption tax increase in October ahead of the House of Councilors election on July 21, despite the fact that ruling parties in the past suffered stunning defeats in national contests following hikes in the broad-based tax.
In contrast, opposition parties are calling for the freezing or scrapping of the plan to raise the tax rate from 8 percent to 10 percent.
In its campaign pledge, the LDP says the tax increase is important to the transforming of social security into a system that benefits all generations and achieving a primary budget surplus in fiscal 2025.
To get voters to warm up to the idea of the tax hike, the LDP also vows to use the increased revenue to make preschool education programs free of charge and implement stimulus measures, including a reward point program for cashless payments, to prevent a post-hike plunge in domestic demand.
While it avoids making a clear commitment to raising the consumption tax, Komeito highlights plans to apply a reduced tax rate of 8 percent to foodstuffs and other daily necessities, and issue coupons to low-income people to “ease the pain consumers feel during shopping every day,” according to its campaign manifesto.
Meanwhile, the opposition parties have put forward different policies on the tax:
The Constitutional Democratic Party of Japan says it will freeze the consumption tax hike plan and instead raise taxes on income from stock sales and other financial transactions. It also pledges to strengthen the progressiveness of corporate tax rates.
The Democratic Party for the People, which is campaigning under the banner “family finances first,” says the consumption tax raise should not go ahead unless the country sees an economic recovery.
Nippon Ishin no Kai suggests that the government delays the tax rise and secures funds to carry out social security projects by cutting the number of lawmakers and central government employees.
The Japanese Communist Party and the Social Democratic Party call for scrapping the tax increase plan and collecting more taxes from big firms.
Reiwa Shinsengumi, a political group created in April, demands that the consumption tax itself be abolished.
Consumption tax hikes have impacted past national elections.
The LDP suffered crushing defeats in the Upper House election in the summer of 1989 just after the introduction of a 3 percent consumption tax, and in the summer of 1998, following a hike to 5 percent in April 1997.
After lifting the tax rate to 8 percent in April 2014, Prime Minister Shinzo Abe put off another hike to 10 percent prior to the House of Representatives election in December the same year.
The prime minister postponed the hike again before the Upper House election in summer 2016.
“The consumption tax nightmare persists,” said a senior LDP member.
Meanwhile, the Democratic Party of Japan, the predecessor of the CDP and the DPP, paved the way for the increase to 10 percent with the LDP and Komeito in 2012, when the DPJ was in power.
CDP leader Yukio Edano says his party calls for “freezing,” not “scrapping,” the tax increase plan because economic fundamentals have changed since then.
“(The consumption tax hike) is not a matter the party can object to directly,” a CDP source admitted.