Japan’s Fiscal Mess: A Pound of Flesh
“THE consumption tax doesn’t have a snowball’s chance in hell of being passed.” So wrote one (usually astute) American economist in December, banking on what has been one of the canons of Japanese politics for the past decade and a half—that few politicians are either brave or reckless enough to risk raising Japan’s most contentious tax.
Surprisingly, to the relief of some and chagrin of others, on June 15th prime minister Yoshihiko Noda’s Democratic Party of Japan (DPJ), though at war with itself, agreed with the main opposition parties to raise the sales tax from 5% to 8% in April 2014, and to 10% in October 2015. The only (ill-defined) proviso is that the economy is strong enough to withstand the increase.
A fiscal-reform bill was expected to clear the lower house of the Diet (parliament) after The Economist went to press, paving the way for its passage in the upper house this summer. If it is enacted, not only will it break a taboo of Japanese politics. It will also deepen the debate in Japan, as elsewhere, about the merits of austerity versus growth.
Politically, the tax rise is certainly daring. When the consumption tax was introduced in 1989 at 3%, and raised in 1997 to 5%, the moves undermined the popularity of the governments of the day. So contentious is the issue still that Mr Noda may feel he has to dissolve the Diet soon after passing the consumption-tax legislation. Either way, he may also face a leadership challenge from within the DPJ in September