Monday, May 24, 2010

House of Councillors Election 2010 - Buying Votes Where One Can

A glance at this morning's top news stories reveals a ruling party working its control of the dispensing of goverment goodies to either nail down or tamp down constituencies possibly crucial to the outcome of this summer's House of Councillors election.

In a move guaranteed to make believers in fundamental structural reform gag, Democratic Party of Japan Secretary-General Ozawa Ichiro and People's New Party leader Kamei Shizuka made grand appearances at the convention of the National Postmasters Association (Zentoku) in Nagoya on Sunday. Ozawa promised the assembled that the Diet would approve the government's proposed amendments to the postal reform law in the current Diet session. The Kamei-drafted amendments, which halt the privatization of the postal savings bank and breakup of the postal services into separate business units, is now in committee in the House of Representatives. Presentation of a bill halting postal reform is having international repercussions and is portrayed in the media as the PNP tail wagging the DPJ dog. Nevertheless, Ozawa seemed quite pleased with his welcome.

Japan has around 20,000 postmasters, spread evenly over the entire country. As such they would hardly seem worth Ozawa's and the DPJ's time. However, pandering to the postmasters is seen as the key to securing the votes of Post Office's large unionized workforce, their family members and the hundreds of thousands of largely elderly voters in rural areas dependent upon the Post Office for their banking, insurance and delivery needs. Winning the support of the postmasters is thought to represent the securing of up to a million votes nationwide -- which gives the postmasters significant leverage in an election featuring a deeply unpopular ruling party and a plethora of political rivals vying for the public's favor.

A few stops down on the Tokaido Shinkansen Line, National Policy Unit deputy minister Furukawa Motohisa visited Osaka to discuss with Osaka Governor Hashimoto Toru the possibility of establishing a special low corporate tax international business zone within the prefecture -- a pet project of the governor's. That Governor Hashimoto has recently established the Ishin no Kai, a political organization the governor hopes to transform into a full-fledged political party -- and that a candidate of the Ishin no Kai yesterday overcame candidates support by the DPJ, the Liberal Democratic Party and the Communists in a local election in Osaka Prefecture , are not likely to be unrelated -- particularly because of the candidates supported by political parties, the DPJ's candidate finished dead last.

That a national government gasping for revenues would actually be considering the establishment of low corporate tax zones in Hashimoto's bailiwick on the theory that a lower corporate tax rate would entice businesses to set up shop in Osaka (or elsewhere) despite the high costs for everything else (land, labor, energy...) is a belief that taxes the imagination.


sigma1 said...

The issue of low corporate tax rates in general has come to the fore in Japan recently I see. My understanding, or perhaps more so belief as the research is not 100 percent conclusive, is that to a point lower tax corporate rates do not make the difference in terms of attracting international corporations, but, they can be a factor in facilitating more domestic discretionary technology innovation (and investment in other value add activities) which can lead to greater government revenues in the longer term. ie 30% of a lot is more than 40% of a mediocre amount.

I guess the question is whether a blunt, low transaction cost instrument like lower corporate tax rates is better, or a direct R&D tax credit with higher transaction costs is better. I understand there is evidence for both.

This article was interesting IMO on this issue:

Joe said...

The problem is, though, if Osaka gets that special taxation designation, every other seirei-class city is going to start clamoring for it as well.