Prime Minister Shinzo Abe stressed this argument as his foremost reason for dissolving the Lower House: “As I have made a major decision regarding changes in the allocation of consumption tax revenues, public opinion must be gauged.”
Raising the consumption tax rate to 10 percent in October 2019 will increase revenues by more than 5 trillion yen ($45 billion) a year. According to a three-party agreement on “integrated social security and tax reforms,” struck five years ago between the opposition Democratic Party of Japan (now the Democratic Party) and the ruling coalition of the Liberal Democratic Party and Komeito, one-fifth of the increased revenues will be spent on beefing up social security and the remainder on paying off fiscal debts.
But Abe’s proposed change is to level the allocation ratio to 1:1, thereby saving about 2 trillion yen. And this “surplus” will be used to reduce the public’s cost burden on university or higher education, and to provide free early education and improve day-care services for children of working parents.
All these matters certainly require urgent handling.
The question, however, is what plans Abe has in mind for fiscal rehabilitation.
He said that although the changes will make it difficult to turn the primary balance into a surplus by 2020, he will not scrap that target, and that he will eventually come up with a plan.
But what he said was grossly misleading.
The changes in the allocation of the consumption tax revenue are not the only reason why that target is unattainable. In fact, it was already impossible, even with increased tax revenues in general based on totally unrealistic economic growth projections, all of which were premised on the current framework centered on paying off fiscal debts.
If the “integrated social security and tax reforms” are to be reviewed according to Abe’s proposal, it will take much longer to generate a surplus in the primary balance. Abe made no mention of when and how he plans to get there.
“We must not pass our debt onto future generations” was all he said. He may not like being called irresponsible, but that is exactly what he is.
Regarding the current social security system, which is mainly about benefit payouts to elderly people, Abe stressed that substantial reform will benefit people of all age groups.
But this has already been the direction since five years ago, and such reform definitely does not constitute the “divisive issue” that Abe insists it to be.
Democratic Party leader Seiji Maehara has already proposed using the increased consumption tax revenue to realize free education. If there are any questions and doubts, they should first be debated in the Diet.
To maintain the social security system in our rapidly aging and low-birthrate nation, a consumption tax hike and other sacrifices are unavoidable. True “integrated social security and tax reforms” must aim to provide decent administrative services to the public and simultaneously curb debts that would be dumped on future generations. Using the consumption tax as a political tool is definitely not the way to go.
But three years ago, Abe postponed the planned consumption tax hike and dissolved the Lower House to call a snap election, saying that “taxation is democracy itself.” His party won the election.
He is repeating the same phrase now, calling for better benefits for the public.
Since Abe seems to be ignoring fiscal rehabilitation and giving little consideration to future generations, we must say the only aim of his proposals is to win the election.