This week, legislation tied to Japan’s reform of social security and taxation systems, including a bill to raise the consumption tax rate from the current 5 percent to 8 percent in April 2014 and then to 10 percent in October 2015, passed the Lower House.
The proposal to increase the consumption tax rate has been highly contentious. Proponents see a fiscal and social need to reduce the national debt, which already exceeds 200 percent of GDP, and to make sacrifices for the future. Opponents voice concern over a possible blow to their household accounts and businesses, particularly if they are small- to mid-sized businesses.
According to the Dai-ichi Life Research Institute Inc., an average household with an annual income of 5,000,000~5,500,000JPY (with working parent and two children) will pay an additional 73,000JPY ($915) and 120,000JPY more annually under the increased rates of 8 percent and 10 percent, respectively. A Bloomberg article warns that Prime Minister Yoshihiko Noda’s decision would “risk stalling the economy.”Enjoying this article? Click here to subscribe for full access. Just $5 a month.
However, the political circumstances leading up to the Lower House vote reflect the obvious: that both the ruling Democratic Party of Japan and Liberal Democratic Party are dominated by lawmakers who care only about re-election, not the impact of the legislation itself.
Indeed, the hype in the Japanese media regarding the Lower House vote has mostly been due to its potential political implications. More specifically, it was about how many DPJ members would vote against the legislation to follow Ichiro Ozawa – the notorious former leader of the party who has been indicted over a political funding scandal and who has been a vocal opponent of the legislation.
Of the 96 members who voted against the legislation, 57 were DPJ members who followed Ozawa. The most pressing question is whether the pro-Ozawa group that voted against the bill will split or be expelled from the DPJ and form a new party, thereby causing the DPJ to lose its majority in the Lower House. As one anonymous DPJ member put it, the decisions of many DPJ members over the vote weren’t based on the pros and cons of the tax rate increase, but on how confident he or she was of being re-elected in the next Lower House election.
While in one respect the LDP, the main opposition party, seemed to back bipartisanship in convincing its 120 members to vote in support of the legislation, the party has really just used its leverage to elicit concessions from the Noda administration and to divide the DPJ. As a result of the negotiations with the LDP, the Noda administration revised the original reform package and dropped some key pledges. Noda also reshuffled the Cabinet in early June to gain LDP support over the bills.
The LDP, meanwhile, has also threatened to submit a vote of no-confidence against Noda should he fail to pass the legislation as promised, which would require him to either resign or call for a snap election. The LDP leadership might have calculated that the Japanese public would view the LDP more favorably given the DPJ’s inability to fulfill its promises, but the LDP instead highlighted that its goal isn’t passing effective legislation, but to defeat the DPJ at the next election.
Although the intention of the pro-Ozawa DPJ members and the opposition parties might have been to split the DPJ and put pressure on the Noda administration, perhaps the actual winner up to this point, if there is one, is Noda himself. In his speech after the Lower House vote, Noda, who declared he would “put his political career on the line” to pass the legislation during this Diet session, emphasized the importance of not putting off tackling the country’s fiscal and social security problems. Instead of worrying about the effects of the consumption tax rate increase on Japan’s economic growth, he asked the people to work to get the economy back in shape to support the rate increase.
While there has been criticism about the timing, fairness and the potential effect on the Japanese economy, Noda has struck a constructive tone to tackling the nation’s problems. Indeed, Noda may be better off ridding the party of the pro-Ozawa group, allowing voters who don’t want to support Ozawa or the LDP the chance to vote for an Ozawa-free DPJ.
Kazuyo Kato is an associate programme officer at the Sasakawa Peace Foundation in Tokyo.