Because of a deal between the ruling Democratic Party of Japan and the opposition Liberal Democratic Party and Komeito, bills incorporating Prime Minister Yoshihiko Noda’s plan to raise the consumption tax are likely to be passed by the end of the current Diet session, which has been extended by 79 days to Sept. 8.
Since former DPJ chief Ichiro Ozawa and his followers are poised to cast “no” votes on the bills, however, the DPJ may face the danger of breaking up. Still, the bills have a good chance of being enacted because the LDP and Komeito will vote for them.
Mr. Noda’s plan to raise the consumption tax from the current 5 percent to 8 percent in April 2014 and to 10 percent in October 2015 appears unwise given Japan’s long period of deflation.
The tax hike will suppress domestic demand, further stagnate the economy and eventually reduce tax revenues. Thus the tax increase will even fail to achieve the goal of reconstructing state finances, which are saddled with huge debts.
Although the bills are dubbed as bills for reform of both the tax and social security systems, no serious efforts to make the social security system sustainable have been made. The current social security system was constructed when Japan was enjoying high economic growth. Nowadays, the numbers of elderly citizens who have to rely on pensions and irregular workers who cannot earn normal incomes are increasing.
The government has decided to raise the consumption tax without overhauling the social security system. Even if the tax hike goes into effect, as long as the social security system is not fixed revenue will not increase in real terms. In this sense, the Noda administration is putting the cart before the horse.
Even if the problematic tax hike bills pass, important legislative tasks are left for the Diet. One is a bill to float bonds for the fiscal 2012 budget. The government has to float bonds worth about ¥38 trillion, or 42 percent of budget revenues.
If the bill fails to pass, the government will not be able to execute a sizable portion of the budget. Opposition forces controlling the Upper House have the power to kill the bill.
Work is also proceeding very slowly on a bill to transfer central government regional offices to local governments, a bill to accord some basic labor rights to national public servants, and a bill to reapportion Lower House seats.
The Noda administration’s ability to deal with the Diet is being tested.
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