future hangs on a tax thread By
TOKYO - With Japan's
economy remaining sluggish after two decades of
prolonged deflation, Prime Minister Yoshihiko Noda
is scrambling to pass bills to raise the
consumption tax before the current parliament
session ends on June 21.
in many occasions that "without a tax increase,
Japan would go fiscally bankrupt like Greece",
Noda has publicly vowed to stake his ''political
life'' on the tax hike plan and now faces the
possible end of his premiership. He is attempting
to raise the consumption tax rate from the present
5% to 8% in April 2014 and to 10% in October 2015.
The nation is still struggling to recover
from damages wrought by the triple disaster of a
devastating mega-earthquake, tsunami and nuclear
meltdown in March 2011 and the debate about the
tax increase could sap still-fragile consumer
spending and business confidence. That could send
the nation into a vicious deflationary
spiral, in which falling
prices and wages lead to rising unemployment.
The uncertainty created by the continuing
global financial crisis is also casting a pall
over the export-driven Japanese economy. Facing
such heightened risks, Noda's rush to force
through significant tax increases is questionable
"He has been subject to the mind control
of the Ministry of Finance [MOF]," Toichiro Asada,
a professor of macroeconomics at Chuo University
in Tokyo, told Asia Times Online. "The MOF
attempts to secure its vested interests through
"The consumption tax hike
amid a deflationary depression, however, would
further shrink GDP [gross domestic product] and
facilitate Japan dropping out of the club of
economically developed nations," Asada said. "A
wrong policy brings about disastrous outcomes."
Noda became prime minister last September
after serving as a senior vice finance minister
and finance minister for a total of two years. The
MOF became his first ministerial portfolio, and he
had been fully immersed in the ministry's
policies, functions, ideas, guidelines and wishes.
The MOF, in return, catered to the wants
and needs of a dutiful minister Noda, known as a
fiscal hawk. It is said among the Japanese
political cycles that the MOF unofficially
supported Noda, rather than his rival Seiji
Maehara, in the ruling Democratic Party of Japan's
presidential election last September.
Noda administration is a puppet government of the
MOF," political analyst Minoru Morita told Asia
Times Online. "It's a stupid thing to raise the
consumption tax at a time when the nation is in a
deflationary situation and when people are
worrying about a global depression."
Fiscal crisis of the state? The
MOF has announced that the accumulative long-term
national and local debts of Japan will reach 196%
of GDP by March 2013 (the end of Japan's fiscal
year), the worst among developed countries.
Moreover, Japan's reliance on debt in its initial
budget for fiscal 2012 hit a new high of 49%.
Thus, the MOF is very reluctant to issue
new government bonds and is keen to secure
financial resources through an increase in the
consumption tax to help cover the nation's
swelling social security costs as the population
ages and fewer babies are born.
such as Asada have pointed out that the MOF is
taking advantage of the Greek debt crisis and last
year's triple disaster in eastern Japan,
trumpeting that "for Japan, the euro-zone crisis
is not a fire on the other side of the river" and
that "restoration from the great earthquake
disaster requires tax hikes".
But in fact,
the MOF itself has admitted that economic crises
overseas are totally different from the situation
in Japan in the past. For example, in May 2002,
Moody's downgraded Japan's long-term credit rating
to A2. Around that time, the MOF made rebuttal
statements against three rating agencies, namely,
Moody's, Standard & Poor's, and Fitch.
It told them, "In the case of
industrialized countries such as the US and Japan,
defaulting on local-currency denominated debt is
unimaginable. What kind of risk is exactly
contemplated as 'default'?"
The MOF also
pointed out that Japan has the largest savings
surplus in the world, and that this surplus
enables the nation to finance most of the debt
domestically and stably at very low interest
rates. In addition, the nation had the largest
current account surplus, that it is the largest
creditor country, and that it had the world's
largest foreign exchange reserves.
Although China has since then past Japan
as the world's largest holder of foreign exchange
reserves, the rest of conditions remain.
Currently, 94% of Japanese government bond is
funded domestically at low interest rates.
"The MOF had done double-dealing," Asada
said. "While prompting fears of a public-finance
crisis domestically, it has denied the nation is
in a financial crisis externally. This is a double
A rapid increase in suicides
again? An increase in the consumption tax
to 5% from 3% in 1997 may have been responsible
for pushing many people to suicide. The following
year, 1998, suicide rates in Japan jumped by 35%
to 32,863 from 24,391 in the previous 12 months.
Some experts say this increase was due to
increased taxes, while others say it correlates
with economic troubles and a rise in unemployment
triggered by currency devaluations in Asia in the
middle of 1997.
Many Japanese are still
mired in a deep socioeconomic malaise in the wake
of last year's natural and nuclear disasters. The
number of suicides could jump again following a
consumption tax hike in coming years.
reshuffled his cabinet on June 4, sacking two
ministers including the defense minister, whom
opposition parties had demanded he replace. Noda
was apparently seeking the cooperation of the main
opposition Liberal Democratic Party in enacting a
law for a consumption tax increase - the
opposition bloc controls the House of Councillors,
the upper house of parliament.
fail to pass the sales tax hike-related bills in
the current parliament session, and his
administration will collapse sooner or later,"
political analyst Morita said. "Many politicians
in both ruling and opposition parties hesitate to
pass the tax legislation within this parliamentary
Noda's decision to push for a
tax increase while the economy is so sluggish is
bad timing, certainly in the eyes of voters. Only
17% of respondents to an Asahi Shumbun survey
think bills related to a sales tax rise should be
passed in the current parliament session, against
72% who said there is no need to pass the bills
And if failure to pass the tax legislation leads
to Noda's resignation, Japan's political chaos
amid a familiar landscape will continue, according to Morita,
not least the regularity with which Japan's prime
ministers come and go from office.
"Whoever becomes the next prime minister,
the next government will become a caretaker
government until a general election," Morita said.
"Japan's revolving door of prime ministers who
keep resigning after very short tenures is likely
is a Tokyo-based Japanese journalist. His twitter
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