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Prime Minister Yukio Hatoyama on Tuesday decided to maintain the current rates on gasoline and other road-related taxes throughout fiscal 2010 even though the road-related tax system will be overhauled by April 2010. The abolition of surcharges on road-related taxes was a main campaign pledge of the Democratic Party of Japan, and the question of whether to maintain the tax rates, including the surcharges, had become a focal point of fiscal 2010 taxation policy.

If Mr. Hatoyama had chosen to stick to the campaign pledge, the gasoline tax would have fallen about ¥25 per liter, but the central and local government would have lost ¥1.7 trillion and ¥800 billion in tax revenue, respectively. Mr. Hatoyama’s decision is reasonable since tax revenues in fiscal 2010 are expected to fall to around ¥37 trillion amid plans to limit bond issuance to ¥44 trillion, roughly the same level as in fiscal 2009. It will also help prevent a rise in greenhouse gas emissions.

Mr. Hatoyama should have made this decision much earlier, though, in light of the nation’s difficult financial situation. The decision came only after DPJ Secretary General Ichiro Ozawa demanded that current rates on the road-related taxes remain. This has left the impression that the prime minister cannot make an important decision on his own.

It is clear that the Hatoyama administration failed early on to sufficiently discuss basic policies related to the tax system from a long-term perspective. In this same regard, it is also regrettable that the government has not yet started substantive discussions on a carbon tax, which it hopes to introduce in fiscal 2011 as a replacement for the road-related taxes.

Mr. Hatoyama managed to keep the promise of providing a monthly child allowance of ¥13,000 per child regardless of household income level, despite Mr. Ozawa’s call for imposing an income cap on eligible households. Some people may wonder why high-income households should get the allowance. Mr. Hatoyama needs to fully explain the DPJ’s logic on this.