Prime Minister Shinzo Abe is set to announce that the consumption tax hike from 8 percent to 10 percent planned for April 2017 will be put off for another 2 1/2 years, and is rushing to secure an agreement between the government and the ruling coalition as the current ordinary session of the Diet draws to a close.
This move will have a huge impact on the future of taxes and social security, and lacks consistency with statements Abe has made in the past.
In late 2014, Prime Minister Abe dissolved the Diet to hold a snap election in the name of seeking the public's opinion on his decision to postpone the consumption tax hike for 1 1/2 years. In a press conference held Nov. 18, 2014, he said, "There will be no further postponements after this one. This, I can promise the public. We will create an economic situation (in which a tax hike will be possible)."
Moving on 1 1/2 years, Abe has made a 180-degree turnabout. What of the weight of the prime minister's past statements and his promise to the public? Furthermore, the basis on which Abe had decided to put off the tax hike yet again is highly unconvincing.
The first problem is that the prime minister is attempting to place the blame for the postponement on economic circumstances abroad. At the G-7 Ise-Shima Summit held May 26-27, Abe expressed his view that the global economy resembled that immediately before the outbreak of the 2008 economic crisis triggered by the collapse of Lehman Brothers, and emphasized at a press conference that the world was at risk of falling into another huge crisis. Abe had until now said that unless Japan faced a financial crisis on the level of the Lehman Brothers "shock" or experienced a massive earthquake of a magnitude similar to the 2011 Great East Japan Earthquake, the tax raise to 10 percent would not be put off again. Now, he appears to have used the Summit to lay the groundwork for the announcement of another postponement.
However, Abe's view of the global economy differed from that of the rest of the G-7's heads of state. British Prime Minister David Cameron and German Chancellor Angela Merkel both stated the global economy did not face the crisis Abe claimed it did. Moreover, the Leaders' Declaration stated, "We have strengthened the resilience of our economies in order to avoid falling into another crisis, and to this end, commit to reinforce our efforts to address the current economic situation by taking all appropriate policy responses in a timely manner" -- showing a clear difference from Abe's "eve-of-a-crisis" argument.
If there were to be any problems, it's the domestic economy, more than anything else. There are no prospects that deflation will stop anytime soon, and the Japanese economy is not yet on the path to full-fledged recovery. If the economic situation is so dire that a tax hike cannot be implemented, Abe should openly admit to the failure of his economic policy mix, "Abenomics." To blame the postponement on overseas factors is to manipulate the debate.
Secondly, the impact that postponing the consumption tax hike will have on social security is significant. The plan was to raise around 1.5 trillion yen from the tax hike, and for the government to allocate that money to benefits for low-income pensioners and other social security needs.
The government also has just put together a plan for "building a society in which all 100 million people can play an active role," including assistance to households with children. Raising salaries of day care and nursing care workers alone will require upwards of 200 billion yen, but a tax hike postponement will make securing the funds necessary for such improvements even more difficult.
And what effects will the postponement have on fiscal reconstruction? The central and municipal governments have debts exceeding a total of a quadrillion yen, the worst among industrialized countries. The government aims to move its primary balance back into the black by fiscal 2020, but this goal becomes even harder to reach with another tax hike postponement.
The latest move has come right before the House of Councillors election, which Abe sees as laying the groundwork for constitutional revision. This is a repeat of the 2014 general election, in which tax policy was used as a tool to keep the Abe administration in power.
The effects of the so-called Abenomics policy mix have not been reflected in the lives of everyday people; rather, many feel an increasing crunch in household finances. The latest Mainichi Shimbun poll showed that 66 percent of respondents agreed with a postponement of the consumption tax to 10 percent.
The two-tiered consumption tax hike to 10 percent is based on a 2012 agreement among the Liberal Democratic Party (LDP), Komeito, and then-Democratic Party of Japan (DPJ) reached during the administration of Yoshihide Noda of the then-DPJ. The point was to separate the issue of tax increases -- which can put anyone supporting such a policy at a disadvantage in elections -- from the competition for political power, in order to secure stable funds for social security. At the time related laws were passed, that piece of political wisdom garnered 44 percent of the public's support.
And now? Prime Minister Abe is set to put off the tax increase once again, and the Democratic Party (DP), resulting from a merger between the then-DPJ and the then-Japan Innovation Party, is also opposed to the tax hike planned for next spring. It's not an exaggeration to say that the three-party agreement reached in 2012 is effectively on the cusp of a complete collapse.
A stable source of funds is indispensable in addressing national coffers in critical condition and increasing social security needs. The Mainichi Shimbun has continued to advocate the necessity of building an environment that would make the planned tax hike next spring possible.
The decision has already been made to adopt a reduced consumption tax rate for food products and other daily necessities when the 10-percent consumption tax is implemented. Such measures are expected to decrease, to some extent, the burden felt by low-income households.
And yet, the prime minister has not only failed to explain the significance and purpose of the consumption tax hike, but appears instead to be showcasing its cons.
If the tax raise is put off for another 2 1/2 years, implementation of the 10 percent consumption tax will be in October 2019. By then, that year's nationwide local government elections and House of Councillors election will already have taken place. Furthermore, unless Abe's tenure as the president of the LDP is extended, his term as prime minister will end in the fall of 2018, before the tax hike. Abe is irresponsibly trying to maneuver his way around a tax hike, and this carries the risk of the public losing all confidence in politics.
Prime Minister Abe's decision to put off the tax hike emerged suddenly without sufficient debate even among the ruling coalition parties. That Deputy Prime Minister and Finance Minister Taro Aso proposed that a general election be held if the tax hike is postponed -- to allow the public to indicate its approval or disapproval for the policy -- is likely an indication of Aso's surprise and misgivings toward the prime minister's sudden policy change.
Opposition parties, meanwhile, have expressed strong objections to Abe's move. Tensions are running high in the Diet, as four opposition parties -- the DP, the Japanese Communist Party, the Social Democratic Party, and the People's Life Party & Taro Yamamoto and Friends -- submitted a no-confidence motion against the Cabinet.
Abe is trying to institute a drastic change in tax policy, which will hugely affect the lives of the public. Exhaustive debate is called for before such a change is enforced.