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ANALYSIS: Japan ruling bloc faces challenge of breaking “tax hike” election taboo

Tokyo, July 9 (Jiji Press) — Japan’s ruling Liberal Democratic Party and its coalition partner, Komeito, are seeking voter support for the proposed consumption tax increase in October ahead of the House of Councillors election on July 21, despite the fact that ruling parties in the past suffered stunning defeats in national contests following hikes in the broad-based tax.

In a stark contrast, opposition parties call for freezing or scrapping the plan to raise the tax rate from 8 pct to 10 pct.

In its campaign pledge, the LDP underscores the importance of the tax increase to transform the social security system into an all-generation type and achieve a primary budget surplus in fiscal 2025.

To turn voters less allergic to the tax hike, the LDP also vows to use the increased revenue to make preschool education programs free of charge and implement stimulus measures, including a reward point program for cashless payments, to prevent a post-hike plunge in domestic demand.

While avoiding making a clear commitment to raising the consumption tax, Komeito highlights plans to apply a reduced tax rate of 8 pct to foodstuffs and other daily necessities and issue coupons to low-income people to “ease the pain consumers feel during shopping every day,” according to its campaign promise.

Meanwhile, the major opposition Constitutional Democratic Party of Japan says that the party will freeze the consumption tax hike plan and, instead, raise taxes on income from stock sale and other financial transactions. It also pledges to strengthen the progressivity of corporate tax rates.

The Democratic Party for the People, which raises the “household first” banner, says the consumption tax should not go up unless the country sees an economic recovery.

Nippon Ishin no Kai (Japan Innovation Party) suggests that the government put on hold raising the tax and secure funds to carry out social security projects by cutting the number of lawmakers and central government employees.

The Japanese Communist Party and the Social Democratic Party call for scrapping the tax increase plan and collecting more taxes from big firms.

Reiwa Shinsengumi, a political group created in April, demands that the consumption tax itself be abolished.

Consumption tax hikes have had impacts on past national elections.

The LDP suffered crushing defeats in the Upper House elections in summer 1989 just after the introduction of consumption tax of 3 pct and in summer 1998, following a hike to 5 pct in April 1997.

After lifting the tax rate to 8 pct in April 2014, Prime Minister Shinzo Abe put off another hike to 10 pct prior to the election for the House of Representatives, the lower chamber of parliament, in December the same year.

The prime minister postponed the hike again before the Upper House election in summer 2016.

“The consumption tax nightmare persists,” says a senior LDP member.

Meanwhile, the Democratic Party of Japan, the predecessor of the CDPJ and the DPFP, paved the way for the increase to 10 pct with the LDP and Komeito in 2012, when the DPJ was in power.

CDPJ head Yukio Edano says his party calls for “freezing,” not “scrapping,” the tax increase plan because economic fundamentals have changed since then.

“It (the consumption tax hike) is not the matter the party can object directly,” a CDPJ source admits.

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