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Tax hike, constitutional reform top Abe’s to-do list

TOKYO — Having won a parliamentary vote to stay on, Prime Minister Shinzo Abe will now focus on raising the consumption tax and revising Japan’s pacifist constitution, but the prospects for those formidable goals seem to hinge on the economy’s health. 

 

Abe was re-elected as prime minister in a special parliamentary session Wednesday, and he reappointed all his cabinet ministers. In a press conference later that day, the prime minister avoided sounding boastful of his electoral success. “I will manage the government with a humble and earnest attitude,” Abe said.

At the same time, Abe repeatedly used the term “the people’s mandate,” signaling that he is intent on using the two-thirds majority in the Diet’s lower house that his coalition won last month to advance his policy goals.

 

Abe’s goal is to stay in office until fall 2021, and to do so, he must win a third term as chief of the ruling Liberal Democratic Party in fall 2018. This hinges on keeping cabinet approval ratings high, and they are directly linked to the performance of the economy.

 

Big ambitions

 

Abe plans to start a fresh debate on revising the constitution, a goal that would burnish his legacy. When the prime minister said in May that he aimed for a revision in 2020, he came under fire for rushing the process. Abe seems to have reflected on that, stressing at Wednesday’s news conference that there is “no predetermined schedule” and that he would strive “to forge a broad agreement” across partisan lines.

 

During the campaign for last month’s election, Abe also set a goal of providing free education using income from a planned consumption tax hike in October 2019 that would lift the rate to 10% from the current 8%.

 

But he also left wiggle room for himself, calling the economy “a living thing.” He said the government “would respond” if there were a shock like the one caused by the collapse of Lehman Brothers in 2008. Tokyo wants to avoid pulling the rug out from under the economy, and the decision on whether to go through with the hike may come as soon as 2018.

 

Constitutional revision and the tax hike both need a strong political base. Proposing a revision requires a two-thirds majority in both houses of the Diet — which the ruling coalition currently holds — and any such amendment needs ratification by a simple majority in a national referendum.

 

Raising taxes directly impacts the public’s pocketbooks, and likewise can drain political capital. A drop in cabinet approval could impact the summer 2019 election in the Diet’s upper house.

 

Eyes on the economy 

 

The economy therefore holds the key. Japan has stayed on a recovery trend since the second Abe administration took power in December 2012. High stock prices are one factor seen as aiding support for his government.

 

But economists see real gross domestic product growth sliding toward 1% from an estimated annual rate of 1.34% in the July-September quarter, the Japan Center for Economic Research’s monthly ESP Forecast survey found. And threats such as North Korean military provocations contribute geopolitical risk.

 

Abe appears to be considering a constitutional referendum that coincides with 2019’s upper house election. If the economy slows, he could face the unthinkable sting of losing seats and being rejected by the people. He told reporters Wednesday only that he had “no intention of debating” whether to hold a referendum alongside the election.

 

Postponing the tax hike due to economic concerns, meanwhile, would cast doubt on the viability of free education and other campaign promises from last month’s election.

 

The government intends to handle political issues related to the prime minister’s signature Abenomics policies very carefully heading into next year’s party leadership election, such as appointing a successor to Bank of Japan Gov. Haruhiko Kuroda, whose term ends in April, and compiling a new fiscal health plan in June.

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