TOKYO - The Liberal
Democratic Party's thrashing in Sunday's House of
Councilors election may derail the Japanese
government's tax-reform plans, including a
consumption-tax hike, casting doubts on the
direction of economic policy.
There is
growing concern that the setback may force Prime
Minister Shinzo Abe's government to abandon its
emphasis on growth and heed opposition demands for
a more equitable distribution of income.
After a meeting on Monday between Abe and
Finance Minister
Koji Omi, officials were
speculating whether the election loss spelled the
end of plans to raise the consumption tax. The
Finance Ministry had proposed the hike in
conjunction with the increase in the state's share
of basic pension-program costs slated for 2009.
The measure would require some 2.5
trillion yen (US$21 billion) in extra funds, which
translates into a 1-percentage-point rise in the
consumption tax. The rate would need to be bumped
up further to pay for other measures, including
those aimed at addressing Japan's low fertility
rate and aging population.
The catalyst
for the changes was expected to be the debate over
fiscal year 2008 tax reform that is set to begin
in the autumn. The Finance Ministry had intended
to submit a reform bill to the Diet (parliament)
as early as next year. However, the opposition
Democratic Party of Japan (DPJ), which calls for
maintaining the consumption tax at 5%, scored a
decisive victory in Sunday's election.
The
prospect of corporate tax reform has also been
dealt a blow. The business community had hoped
that the government would move to lower the
corporate tax rate after deciding to increase the
consumption tax. "The global trend is for higher
consumption taxes and lower corporate taxes," said
Yutaka Kosai, chairman of the government's Tax
Commission.
In Japan, however, the
political winds appear to be blowing in the
opposite direction.
Post-poll blues The day after its big loss, the LDP seemed to
be in no hurry to address the deep discontent
expressed by voters, while the triumphant DPJ also
remained quiet because of the absence of leader
Ichiro Ozawa.
Leaders of the LDP and
coalition partner New Komeito agreed on Monday for
Abe to stay on. Although Abe's first news
conference after the election was closely watched
for any indication of plans to revive the
coalition's public standing, he only issued terse
comments about reshuffling the cabinet in
September.
Abe was noticeably conciliatory
at the press conference. "I have to repent for
what I have to repent," Abe said, pledging to
tackle corruption involving political funds. He
revealed that he has instructed LDP secretary
general Hidenao Nakagawa and other leaders to
consider tightening the Political Funds Control
Law.
During the ordinary Diet session, the
DPJ had proposed tighter revisions than the ones
approved by the ruling coalition. Abe was
apparently trying to show his willingness to work
with the DPJ this time. But other than the
political-funding issue, he did not offer any
areas of cooperation. Abe's seemingly slow move to
reshuffle key personnel also worried some
observers.
"We must look at our schedule,
including planned diplomatic events," he said when
asked about the timing of a cabinet
reorganization. His aides claim there is no time
for sweeping personnel moves until mid-September
because the prime minister is slated to visit
India and will meet with German Chancellor Angela
Merkel next month.
One reason that Abe
cannot quickly select a new slate is that he plans
to do a thorough background check on every
prospective cabinet member to avoid being hit by a
string of scandals again. Abe came under fire for
naming those close to him to key posts in his
first round of appointments. But it is not an easy
task to please everyone and still put the right
people in the right places.
Even lawmakers
from the ruling parties have begun to question
whether the coalition can emerge from its
devastating loss while keeping scandal-hit
Agriculture Minister Norihiko Akagi on board.
However, the DPJ, which scored a
resounding victory on Sunday, failed to rise to
the occasion. It simply decided to announce on
Tuesday an election for the head of the party's
Upper House caucus. This is because party chief
Ozawa has vanished from public view since Saturday
afternoon, citing health reasons. Not even top DPJ
officials were aware of Ozawa's plans.
The
start of a post-election Diet session scheduled
for August 7 may provide an opportunity for the
DPJ to pressure the Abe government further. But
with its leader absent, the party's strategy
remains unclear.
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