Prime Minister Shinzo Abe has changed his mind about how to use increased revenue from a higher consumption tax after the rate is raised from the current 8 percent to 10 percent in October 2019.
The hike is expected to generate an additional 5 trillion yen ($45 billion) in annual tax revenue. Plans originally called for around 4 trillion yen of that amount to be used to pay off government debts. Abe now wants to have part of that sum redirected to making education free and for other purposes.
It would seem that the prime minister raised the matter out of the blue as a pretext for calling a snap Lower House election.
The decision would change the framework of an “integrated social security and tax reform” that was agreed to five years ago by three political parties: the Democratic Party of Japan, the ruling party at the time; the Liberal Democratic Party, then in opposition; and Komeito, currently the LDP’s junior coalition partner, which was then also in opposition.
Abe may explain, at a news conference he is planning to hold shortly, he is going to go to the people precisely for that reason.
But questions persist. Quite simply, this policy has been raised without any discussion.
The government’s basic economic and fiscal policies, which it approved in June, cited several possible revenue sources for covering the expenses of free education and other measures–including more efficient spending, taxation and a new social insurance system. A decision on this was supposed to be reached by the end of this year. Abe himself has just told a panel of experts inaugurated in early September that he wants substantial discussions on the issue of revenue sources.
There is a tinge of deja vu here.
Three autumns ago, Abe decided to postpone a planned increase in the consumption tax rate to 10 percent, which was then scheduled for October 2015, just as the government was consulting experts about the wisdom of raising the tax rate. When he announced the decision to put off the tax hike until April 2017, Abe also said he was dissolving the Lower House in order to “go to the people.”
Just before the Upper House election last year, the prime minister again decided to postpone the consumption tax increase, without holding discussions within the government and the ruling parties.
Many would welcome Abe’s proposal to alleviate the burdens of education expenses on households, although this time around, the plan presupposes that the consumption tax increase will go ahead. The prime minister comes up with voter-friendly policy proposals every time a national election is held.
One is left to wonder what he intends to do with the plan for rebuilding government finances.
When Abe outlines his proposal to redefine the way the increased tax revenue is used, he is also expected to announce that he will put off the current goal of fiscal 2020 for turning the government’s primary balance into a surplus.
The goal looks ever remote. That was evident as early as July, when it was learned that the government’s tax revenue for fiscal 2016 had fallen year on year for the first time in seven years.
Abe, however, continued to insist that the goal would remain in place. And he is now preparing to say that he will give it up. He is probably doing so because he wants to explain that he will work instead on making education free.
Abe has been arguing that increased tax revenue from economic growth will improve Japan’s fiscal state. But reality has failed that argument. One could be excused for believing that what the prime minister is doing is intended to gloss over that failure.
Seiji Maehara, leader of the main opposition Democratic Party, proposed some time ago that the additional revenue from the planned consumption tax increase should be spent on measures to expand social security, including free education.
The right thing to do is to seek consensus through deliberations in the Diet instead of dissolving the Lower House, which flies in the face of the tripartite agreement on integrated reform.
Deciding how the public should be taxed and what administrative services the funds will be provided for represent the cornerstone of democracy. Abe is making light of those processes.
–The Asahi Shimbun, Sept. 24