Prime Minister Fumio Kishida quickly blew an opportunity to take a bold step away from the economic path taken by his two predecessors.
In fact, Kishida on Oct. 11 doubled down on a decision that shows he has already reverted back to that familiar course.
After his first question-and-answer session in the Diet as prime minister, Kishida said on a TV news program that he had no plans to even raise the possibility of imposing higher taxes on stock gains in year-end discussions on tax reforms for the next fiscal year.
Although that decision may appease market players and investors, it also raises questions on where Kishida will find revenue to create his promised positive spiral of economic growth and redistribution of benefits.
The familiar course of “Abenomics” was set under the Shinzo Abe administration and continued by the Yoshihide Suga government. While those measures helped to push up stock prices, they were criticized as doing little to improve wages among ordinary people.
In Diet deliberations on Oct. 11, Yukio Edano, the head of the main opposition Constitutional Democratic Party of Japan, noted that even the governments headed by the Liberal Democratic Party had said from six years ago that there was a need to review the taxation system.
Under current income tax rules, affluent individuals who derive most of their income from stocks can pay less in taxes than those in lower income brackets.
Although discussions were held within the LDP about possible revisions, the proposal never went anywhere under Abe and Suga. The monetary easing policy under Abenomics led to an uptick in stock prices that the two prime ministers did not want to see slacken.
That line of thinking has apparently continued in the new administration.
Close associates to Kishida admitted that the decline in stock prices since he became prime minister on Oct. 4 was one concern that led to a rethinking of priorities.
“We cannot simply ignore those trends and push ahead with our proposals,” one associate said.
During the LDP leadership election campaign, Kishida pledged to change the taxation system so that those who earn more than 100 million yen ($883,000) a year pay more in taxes.
On Oct. 10, Kishida backed away from that pledge.
When Edano asked Kishida in the Diet about his about-face, the prime minister said that proposal was just “one option” among many he had made to bring about a “new capitalism” in Japan in which the middle class receives a greater share of the benefits.
Kishida told Edano that priority would be placed on providing tax incentives for companies that raise the salaries of employees as well as strengthening measures regarding subcontracting transactions.
But the proposal to raise taxes on stock gains was one of the few potential sources for increased government revenue.
With that option now put on hold indefinitely, Kishida will have a harder time explaining how he intends to achieve a “new capitalism.”
He may be forced to rely on the same old measures used by Abe and Suga to pay for the various programs—government bonds.
That would only inflate the fiscal deficit that is the highest among advanced nations in terms of ratio to gross domestic product.
(Maho Yoshikawa and Tomoyuki Izawa contributed to this article.)