Kaoru Yosano, a harsh critic of Japan’s ruling Democratic Party of Japan (DPJ), has joined with his erstwhile enemies to tell voters an “inconvenient truth” — a sales tax rise is needed to fund the bulging costs of an aging society.
However, skepticism runs deep whether Yosano, a former finance minister who spent most of his career in the rival Liberal Democratic Party (LDP), can help break the sales tax curse that has tripped up Japanese Prime Minister Naoto Kan and a string of past leaders.
“Markets do respect Kan’s drive for fiscal reform and do have some hopes, but I’m quite doubtful as to how much he can achieve,” said Jun Fukashiro, chief fund manager at Toyota Asset Management. “Market expectations for change are zero. That doesn’t change much with Yosano joining the Cabinet.”
Yosano pitched his well-known position that Japan must raise its 5 percent sales tax in a book last year entitled The Democratic Party of Japan will destroy the Japanese economy.
“Telling the truth means speaking an ‘inconvenient truth’ — even if it will hurt your election chances ... or be temporarily criticized by the public,” Yosano wrote. “It is impermissible to turn our backs on fundamental tax reform.”
His harsh critique of the DPJ has come back to haunt Yosano since he switched political sides to take up the economics minister portfolio in a Cabinet reshuffle last week.
Yosano faces heavy fire in a parliamentary session starting next week from his former colleagues in the LDP, from which he bolted last year to set up a new party, but at 72, the one-time contender to be prime minister seems unlikely to be fazed.
The grandson of two well-known poets, Yosano — who took time off from politics after surgery for throat cancer in 2006 and barely kept his seat in parliament three years later when the DPJ swept to power — may feel he has little to lose.
“He is old and has been ill in the past,” Sophia University professor Koichi Nakano said. “He figured this time, he had to do something and because of his reputation as a policy expert, he was able to join the government in the name of the national interest.”
Yosano has been echoing his dire warnings about Japan’s fiscal health since taking office in Kan’s government.
“Japan’s fiscal policy will hit a dead end if it is left as it is,” he said after his appointment, adding that Japan risked losing international credibility and a rise in long-term interest rates longer term if it failed to act.
Kan’s new agenda marks a sharp shift from the DPJ’s platform in 2009, when predecessor Yukio Hatoyama pledged to put more money in consumers’ hands to boost growth and tried to put a lid on talk of a future sales tax rise. Kan took over as prime minister after Hatoyama quit in June last year following a steep slide in his ratings.
Yosano has rejected the “fiscal hawk” label as too simplistic. In fact, he helped draft a ￥27 trillion (US$326 billion) stimulus package in 2009. Paying back public debt, he says, requires a mix of other tax hikes, spending cuts and a growth strategy to raise tax revenues.
Yosano also advocates central bank independence, making his return to government welcome to the Bank of Japan.
Kan may have hoped that Yosano’s appointment would smooth talks on policy with the opposition parties that control parliament’s upper house. Instead, it has outraged the LDP, which brands him a traitor.