Wednesday, April 16, 2008

From the Archives - Regarding the Folding of the Gasoline Tax Revenues Into the General Fund

Saturday's Tokyo Shimbun had a hilarious cartoon regarding the fight over the gasoline tax bill.

Kan Naoto, Hatoyama Yukio and Ozawa Ichirō of the DPJ try to seize the torch from a discomfitted Prime Minister Fukuda as the teal-clad Chief Cabinet Secretary Machimura Nobutaka and LDP Secretary General Ibuki Bunmei rush in to protect the gasoline nozzle topped symbol. In the background, former Prime Minister Abe Shinzō lies prostrate, a gasoline nozzle by his side.
Courtesy: Tokyo Shimbun. April 12, 2008, morning edition.

Which provides an excellent excuse to dredge up a post from the archives:

Will You Compose a Requiem for the Postwar Era?

Ostensibly, the fight is about concrete and budgets.

In reality, it is a fight about the future.

Road funds debate
The Asahi Shimbun

In recent weeks, Prime Minister Shinzo Abe has been stressing his "unwavering" commitment to reform far more frequently than before. Now, Abe faces the first major test of his political will to push through his reformist agenda. Talks between Abe and his ruling Liberal Democratic Party over a proposal to funnel tax revenues currently earmarked for road construction into general-purpose funds have reached the final phase.

The focus of the debate is what to do with the 3 trillion yen or so in gasoline tax revenue, which accounts for 80 percent of overall state tax receipts set aside for road projects. Given the nation's fiscal crunch, there is undoubtedly a strong case for scrapping this system under which a sizable portion of the government's tax take is used exclusively for building new roads.

By incorporating the earmarked tax collections into the general revenue account, it should be possible to use the funds for any purpose, including road construction and repair projects.

But this policy change is not as easy as it sounds. Former Prime Minister Junichiro Koizumi promised to do the same thing when he swept into office in 2001. But this turned out to be a formidable political challenge because of strong opposition from LDP lawmakers with ties to road construction-related companies, as well as local governments, ministries and the auto and oil industries. In the end, Koizumi's attempt was thwarted.

Late last year, amid the political euphoria that followed the ruling party's overwhelming victory in the Lower House election over the single issue of postal services privatization, the LDP agreed with the government to make the road funds available for general use.

But the task of shaping a specific policy was left to the new administration. So it came as no surprise that Abe would reaffirm this agreement when he reiterated his pledge to push through the reform late last month.

He said at the time, "We must accomplish this reform on behalf of the people to ensure we never again build unnecessary roads." Abe needs to push forward with the policy without allowing the initiative to be watered down.

Will he stick with his plans to advance structural reform or will he steer the LDP back to its old self by making unseemly political compromises with special-interest politicians?
Everyone involved in this fight knows that this is a death match. Once the gasoline tax receipts are folded into the general account, they will never be pulled out and reserved for road building again.

The "road tribe" in the Diet and most of the district seat holders from rural areas also know that this is their Toba-Fushimi. This battle that will determine whether the postwar superstructure survives or is swept away.

Sadly, it a battle the rural districts must lose if Japan is to have any future at all.

Many good things will perish, among them the laudable rough equality in living circumstances found throughout the country. Many towns and villages will die.

However, if anything has been suppressing Japan's economic recovery and reemergence from stagnation over the past 15 years, it has been the vain attempt to maintain existing political boundaries and administrative arrangements. Faced with demographic and international competitive pressures, the country drifts as a handful of prefectures struggle to subsidize the entire archipelago.

Why, pray tell, does anyone live in Saga? Why build new (roads, bridges, tunnels, dams, jetties) there?

To be sure, the system that has evolved, the one the LDP "forces of resistance" are trying to protect, is a finely tuned system, a non-disruptive system.

Parasitism, successful parasitism, works hard to not kill the host...but it still breeds lethargy, ambivalence and immobility in the host organism.

One of the recurring conundrums for the economics writers is the neverending wait for the reemergence of robust Japanese personal consumption (not that they don't have their theories). Surely after so much government stimulus, the populace must start spending its bounty?

When there is no multiplier effect--when a new road or bridge does not increase economic activity in a rural community and indeed it makes a once pretty bit of scenery ugly--fiscal and monetary stimulus leads to nothing.

Stimulus becomes at best economically neutral, like gray wallpaper.

Most of the reaches of rural Japan, even the areas close to Tokyo, live as parasites--they rely on the southern Kantō plain, Aichi and Fukuoka to provide the surplus the rural areas live on. Residents in those urban districts pay for the bizarre privilege of keeping voters from moving to regions where economic growth is taking place.

This has got to stop.

But without visionary, revolutionary and self-confident leadership, it will not stop.

The original December 7, 2006 post can be found here.

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