Call it the curse of the consumption tax.
From Masayoshi Ohira, who first broached the notion ahead of an election in 1979, to Ryutaro Hashimoto who raised the levy to 5 percent from 3 percent in 1997, Japanese leaders have typically found asking voters to pay more the kiss of death at the polls.
Now Japanese Prime Minister Naoto Kan is betting that he can break the spell by pitching a program to rein in Japan’s bulging public debt, including a possible doubling of the sales tax, ahead of an upper house election he needs to win to avoid policy deadlock.
“Debating the sales tax has long been seen as a political taboo. But for the Japanese people and for us politicians to achieve a strong economy and strong fiscal condition, we dared to mention this,” Kan told a news conference last Thursday, where he stunned listeners by citing a possible rise to 10 percent.
That was a major shift from his Democratic Party’s stance under predecessor Yukio Hatoyama, who had promised not to raise the tax for four years after taking power last year with pledges to cut waste and give consumers more cash to boost demand.
Experts, however, say Kan’s gamble is less risky than precedent suggests, since growing worries about creaky pension and health care systems and the specter of a Greek debt tragedy have shifted public opinion in favor of fiscal reform.
“Now people are sort of educated, especially looking at Greece and peripheral countries in the Euro areas,” said Masaaki Kanno, chief economist at JPMorgan Securities. “Now is the right time to discuss this, and more and more people seem to support a tax hike, though it could be a close call.”
Economists have long argued the need to raise Japan’s sales tax — low by global standards — given the country’s ageing population and shrinking workforce.
With public debt now about twice the size of the economy and set to grow if nothing is done, voters increasingly agree.
“I think a sales tax hike is pretty important right now. If you look at what happened to Greece, it makes you realize that we need to take action so the same thing doesn’t happen here,” said 32-year-old Iku Takahara, who works in marketing.
Kan’s task is also being made easier by the fact the main opposition Liberal Democratic Party (LDP) and some smaller rivals are also pitching the need for a sales tax rise.
“People are worried about the future and dissatisfied with the LDP’s old pork-barrel spending,” said Tsuneo Watanabe, a senior fellow at the Tokyo Foundation think tank. “Since the LDP came out first with 10 percent, saying the same thing isn’t very risky.”
A 5 percentage point rise, however, may ultimately not be enough, given the need to start paying back debt while covering the growing pension and medical costs of a graying society.
The government is budgeting for tax revenues of ¥37.4 trillion (US$411 billion) this fiscal year, including ¥9.6 trillion from the sales tax, and relying on borrowing for ¥44.3 trillion.
A 1 point increase in the sales tax, meanwhile, would boost revenues by about ¥2.5 trillion, one estimate said.
“A five point increase to 10 percent is not enough,” Kanno said. “It should go to at least 15 percent.
Despite the growing consensus, talking about taxes and raising them are different matters, so Kan could face an even harder task in deciding when to raise the tax — assuming the Democrats fare well enough at the polls for him to keep his job.
“Timing is a big issue. Hashimoto raised the sales tax just as the economy was starting to improve and killed the recovery. So he failed over the timing. That’s what is tough,” Kanno said.
Hashimoto resigned as premier after the LDP took a bashing in a 1998 upper house election, punished by voters angry that the higher sales tax had derailed a nascent economic recovery. His successor opened the floodgates to spending in response.
Kan has steered clear of saying when any sales tax rise would take place. His party policy chief said autumn of 2012 was the earliest technically feasible date, while his chief cabinet secretary said the government should first seek a mandate in a general election, which must be held by late 2013.
Improved tax revenues from Japan’s ongoing economic recovery plus wafer thin yields on Japanese government bonds compared to those in other major economies should give Kan breathing space to work out and implement a tax plan, economists said.
A sudden economic slump, however, could foil the best of intentions.
“If the economy unexpectedly moves to a downturn, the politicians would use that as an excuse not to do anything,” Kanno said. “There are some risks.”
ADDITIONAL REPORTING BY STANLEY WHITE AND BENJAMIN SHATIL
Monday was the 37th anniversary of former president Chiang Ching-kuo’s (蔣經國) death. Chiang — a son of former president Chiang Kai-shek (蔣介石), who had implemented party-state rule and martial law in Taiwan — has a complicated legacy. Whether one looks at his time in power in a positive or negative light depends very much on who they are, and what their relationship with the Chinese Nationalist Party (KMT) is. Although toward the end of his life Chiang Ching-kuo lifted martial law and steered Taiwan onto the path of democratization, these changes were forced upon him by internal and external pressures,
Chinese Nationalist Party (KMT) caucus whip Fu Kun-chi (傅?萁) has caused havoc with his attempts to overturn the democratic and constitutional order in the legislature. If we look at this devolution from the context of a transition to democracy from authoritarianism in a culturally Chinese sense — that of zhonghua (中華) — then we are playing witness to a servile spirit from a millennia-old form of totalitarianism that is intent on damaging the nation’s hard-won democracy. This servile spirit is ingrained in Chinese culture. About a century ago, Chinese satirist and author Lu Xun (魯迅) saw through the servile nature of
The National Development Council (NDC) on Wednesday last week launched a six-month “digital nomad visitor visa” program, the Central News Agency (CNA) reported on Monday. The new visa is for foreign nationals from Taiwan’s list of visa-exempt countries who meet financial eligibility criteria and provide proof of work contracts, but it is not clear how it differs from other visitor visas for nationals of those countries, CNA wrote. The NDC last year said that it hoped to attract 100,000 “digital nomads,” according to the report. Interest in working remotely from abroad has significantly increased in recent years following improvements in
In their New York Times bestseller How Democracies Die, Harvard political scientists Steven Levitsky and Daniel Ziblatt said that democracies today “may die at the hands not of generals but of elected leaders. Many government efforts to subvert democracy are ‘legal,’ in the sense that they are approved by the legislature or accepted by the courts. They may even be portrayed as efforts to improve democracy — making the judiciary more efficient, combating corruption, or cleaning up the electoral process.” Moreover, the two authors observe that those who denounce such legal threats to democracy are often “dismissed as exaggerating or
RSS