Japan’s rival parties clinch tax deal to end deadlock
TOKYO, June 15 — Japan's ruling Democrats today clinched a rare deal with the opposition on a plan to raise the sales tax in a breakthrough for a country long trapped in a cycle of revolving-door governments, half-measures and policy gridlock.
Investors and rating agencies see the plan to double the tax to 10 per cent by October 2015 as a test of Tokyo's resolve to bring its snowballing debt under control, though it is just a first step in a long slog to fiscal health.
After months of trench warfare in a divided parliament negotiators for rival parties endorsed the plan following week-long talks that also covered proposals to reform the social security system.
International consensus is that the world's fastest ageing society, saddled with swelling medical and pension bills and public debt exceeding two years' economic output, needs to do much more to get its finances in order.
The International Monetary Fund recommends raising the sales tax to 15 per cent, raising the retirement age and other measures to cut social security spending, and cuts in corporate taxes to spur economic growth.
Still, the breakthrough on the tax plan alone, long considered a political taboo, is a remarkable feat for Japan, hit by a string of credit downgrades in the past two years largely because of its failure to make any progress in tackling its swelling debt. Noda’s triumph
It is also a victory for Prime Minister Yoshihiko Noda (picture) who not long ago looked doomed to fail, caught between detractors in his camp and the opposition threatening to use its majority in the upper house to sink the tax and force a snap election.
But the former finance minister prevailed thanks to his dogged pursuit of his signature policy and readiness to put his job and the Democrats' grip on power on the line.
Ten months into the job, he has a chance to accomplish more that a gallery of his five predecessors who led Japan since the charismatic Junichiro Koizumi stepped down in 2006.
The breakthrough is also good news for the Bank of Japan, which has been under immense pressure to continue its policy of monetary easing from politicians keen to assure the public that economy has strength to cope with a higher tax burden.
Noda does not have to call an election until August 2013, but the threat of a snap vote appears to have helped hammer out a compromise.
Opinion polls suggest the Democrats would lose the vote badly and while the main opposition Liberal Democratic Party (LDP) should do better than in a 2009 drubbing that ended half a century of its rule, it would fall well short of a majority.
The prospect of a disastrous poll may keep some of Noda's detractors from voting against the tax, and opposition help should ensure its passage in both houses of parliament.
“I think there may be a fair number of defectors, but the LDP will agree so it is meaningless,” Democratic Party elder Kozo Watanabe told reporters, according to Kyodo news agency.
Noda is expected to squeeze in the lower house vote after he returns from a Group of 20 summit on June 20. The current parliament session ends a day later, so it may have to be extended to get the bill through the upper house.
The compromise with the LDP may still split the Democrats who swept to power promising more generous support for Japanese families, and many feel the party went too far in abandoning its campaign pledges and adopting what are essentially LDP policies.
“One might note that Noda is seen as the most effective LDP leader in a long time,” said Jeffrey Kingston, director of Asian studies at Temple University's Japan campus.
Analysts warn that even if the tax plan gets approved swiftly, the divided parliament means more stop-go action rather than smooth sailing ahead.
“The problem with Japan's political system is that the upper house is too strong,” Hiroshi Shiraishi, senior economist at BNP Paribas in Tokyo said before the vote. “So as long as the opposition continues to control it, getting things done will remain complicated.” — Reuters