Wednesday, August 03, 2011

And I Wish I Had A Pony

In American liberal blogs there is, or at least there used to be, a great deal of mysterious talk about ponies. The reference is to a rather famous blog post about wishing for impossible things – that whilst one was in the process of wishing for impossible things, one might as well wish for a pony as well.

On the 27th of last month, the government issued its plan for the reconstruction of the Tohoku area in response to the earthquake, tsunami and nuclear power plant meltdowns. The plan calls for spending 13 trillion yen over 5 years, starting with the third supplementary budget of Fiscal Year 2011.

The problem with the 13 trillion plan is that no one agrees on how to pay for it. In what was labeled a major defeat for the prime minister, the final draft of the plan did not include his government’s suggestion that at least 10 trillion of the total be paid through a special temporary tax or set of taxes. Instead, the final report contained no indication on how the government of Japan was to pay for all the carefully considered measures suggested.

It is hard to understand how for a prime minister on his way out the absence of a serious projection on how to pay for something not on his list of “must dos before I resign” represents a significant defeat. However, such is the heated atmosphere of Japanese news that any deviation from the prime minister’s course of action is seen as a loss of the all-important kyushinryoku (centripetal force) of the PM. In truth, since the reconstruction plan was not Prime Minister Kan Naoto’s list of bills that must pass before he resign, the means by which the government will pay for the reconstruction plan is really an SEP (Somebody Else’s Problem).

Just how that Somebody, whoever he may be, will indeed pay for the reconstruction plan is part of an unhealthy debate betweem the various parties – unhealthy because it is chock full of wishes for ponies.

In the Democratic Party of Japan, a significant number of those members in the first or second terms, cognizant of the party’s already low popularity ratings, want to squelch or at least minimize all talk of tax rises. The two declared candidates for the presidency of the party Ozawa Sakihito and Mabuchi Sumio, in blatant pandering to these members, have already declared that if elected party president, they would work hard to prevent the inclusion of new taxes in the reconstruction plan. Instead, they want to fiddle with the way the government accounts for its revenues or to have a massive sell off of the government’s assets, including the government stake in Japan Tobacco, the so-called “buried treasures” (maizokin) method of rectifying the government’s accounts. That a massive selling of government assets, which include huge tracts of land, would lead to a general collapse of asset prices, is studiously ignored.

The Liberal Democratic Party, while not fundamentally opposed to a temporary tax increase, is hoping for a passage of a vote of no confidence against the Cabinet, or barring that tie up Diet proceedings so thorough that either Prime Minister Kan or his successor has to dissolve the Diet and call an election, one that the LDP (if the current public opinion polls are correct) will win in a landslide. As the interim goal of the LDP is to force an election, any talk of a tax rise is being muffled, lest it should weaken support for the LDP the way it has weakened all parties whose leaders have either introduced new taxes or made noises about introducing them. Instead, the LDP formally wants to change the plan, extend its mandate to over 10 years and issue special reconstruction bonds that investors somewhere (just where is unclear) will want to buy.

The New Komeito, the erstwhile ally of the LDP, wants no new taxes at all. Instead the party’s leaders argue the reconstruction of the northeast can be funded out of a mixture of reductions in current spending (ignoring thereby the inconvenient truth that very little of the budget is actually discretionary, much of it being used to pay off previous government borrowing and entitlements) and the sale of the buried treasures.

The Your Party, being in its essence the anti-tax party, will never, ever agree to any plan containing the least rise in taxes. Instead the party believes that reconstruction can be funded with reconstruction bonds and a reduction in the pay of civil servants. That civil servants have already suffered wave after wave of pay cuts and that the service is bleeding talent like a hemophiliac with a paper cut, is again blissfully ignored.

Like the Your Party and the New Komeito, the Communist Party of Japan is opposed to any tax rise. One would think that the party of the working class would be willing to propose a heavy rise in the taxes paid by the wealthiest of Japan’s citizens. However, the JCP is so close to the edge of extinction that even this ideologically reasonable proposition is beyond their electoral calculations. Instead, the Communists, which are the closest Japan has to a Green Party, have proposed that the reconstruction of the northeast be paid for by cuts in the government’s support of nuclear power and by the transfer – Amaterasu knows how – of donations to the political parties.

As for the Socialists, they believe that prior to any talk of reconstruction of the northeast, the government should focus on reviving the national economy. That the government has been focused on this subject for twenty years to no avail is, of course, another inconvenient truth.

Given the above, it would not be out of place for DPJ Secretary-General Okada Katsuya and the leaders of all the other parties in the Diet to come together and decide on where they are going to build their stable – and how they can get the government to pay for it.


philippe said...

Are we heading towards a DPJ - New Komeito coalition in autumn ? The latter seems to be making friendly noise towards the former – if my, admittedly somewhat distracted, reading of the press today is correct.

Kan would be gone - the two pending bills passed with lip service of New Komeito. Of course, no-one knows how to pay for the aftermath of the big wave.

Anonymous said...

Your analysis is very much framed from the American perspective on debt. Since the opposition parties seem to be taking note of the effectiveness of Republican 妨害 tactics in the U.S. since the DPJ took power in 2009, it may not be a bad frame to work on.

However, it would be wise to remember how the Japanese people took on a petrol tax to fund assistance for the Persian Gulf War (and were upset when their sacrifice wasn't recognized). It behooves the government to do something similar with a balanced approach of Tohoku Reconstruction Bonds and a Reconstruction Tax. The people would gladly pay a little more for things to help those in Tohoku (this should have started back in March/April when momentum was really on the government's side on this).

MTC said...

Anonymous -

Please review the fates of the parties of the prime ministers who 1) imposed the consumption tax, 2) raised the consumption tax, 3) talked about the possibility of a need to raise consumption tax in the election that followed.

Raising taxes, even in the name of good causes (the consumption tax being the way the Japanese government hopes to square the circle of higher social and medical spending as Japanese society ages) is simply not survivable in the post-bubble era.

Anonymous said...

I wasn't talking about raising taxes to cover "entitlement" spending (again, a very American framing for the debate), but a temporary tax and special low-interest bonds to cover the supplementary budgets and subsequent recovery efforts. The only way to solve this debate is to ask the people. How about this poll from Jiji a month after the earthquake?


This was the first poll that came up when I googled it. I don't have time to look for more current polls , and this one conveniently fits my argument. I'm only saying that extraordinary times call for extraordinary measures, and the Japanese people know they have to 我慢 the burden of higher taxes to pay for it.

Just for the record (even though I'm saying this anonymously and off the record), I don't believe raising taxes when you are trying to spur domestic spending is a good idea in tough times like these; especially with something as regressive as a consumption tax.