Japan: Tax hike I (DPJ 2010-12)

Proposal

The Democratic Party of Japan (DPJ), under the Hatoyama administration (2009-10), originally pledged in its manifesto for the Upper House election that it would not introduce a sales tax hike for the coming 4 years. However, in May 2010, the Hatoyama government announced that it would implement a sales tax increase despite its earlier promises (Asahi Shinbun, May 7, 2010, p.1). The Kan administration (2010-11) attempted to introduce the tax hike, resulting in in ‘a rout in elections that led to loss of control of the Upper House in 2010’ (Park and Ide 2014:692). This loss prompted opponents within the DPJ to mobilise against PM Kan, eventually leading to his resignation (Park and Ide 2014:692, Asahi Shinbun). The successor government, led by Yoshihiko Noda (DPJ), proposed a new landmark bill, which would result in a two-stage tax hike – from 5% to 8% in 2014 and then 10% in 2015 (Park and Ide 2014:692). This therefore represented a doubling of the sales tax, which is a flat-rate indirect tax on consumption and is therefore widely regarded to be regressive in that it taxes a greater proportion of income for those with lower incomes.

Severity: given that the measure represented a doubling of the sales tax, and that it had been explicitly ruled out ahead of its adoption, we consider the proposal to be high in terms of severity.

Severity: high

Target: as the measure increases the flat-rate consumption tax, we view it as a targeted and regressive measure that will have a disproportionate impact upon those with lower incomes. We therefore view it as regressive and therefore categorise it as targeted on ‘outsiders’.

Target: outsiders (regressive)

Refusal

The proposal for a sales tax hike received considerable public opposition, which mainly took the form of a series of public demonstrations.

This includes May Day protest events against the suggested sales tax hike which took place under the Hatoyama administration. For instance, in 2010 in  Toyama 800 people gathered at a May Day protest event to protest against the tax hike and demand the abolition of poverty (Asahi Shinbun 2 May 2010 p.2). In Oita, Zenrouren (Japan’s second largest trade union) mobilized 300 people to conduct a street protest against the suggested sale tax hike under the Hatoyama administration (Asahi Shinbun 2 May 2010 p.21).

The  Kan administration also faced criticisms of its attempt to increase the sales tax. In Kyoto, for instance, 1,000 people joined a protest rally in opposition to poverty and especially the sales tax hike (Yomiuri Shinbun, May 2, 2010, p.19).

The Noda adminstration also faced similar protest – including, remarkably, a protest event attended by (now ex-)PM Hatoyama (picture below) (Jiji Tsushin, June 14, 2012); unions in the oil industry held large-scale protest events to oppose sales tax hike under the Noda administration; 8,000 people gathered at the Zenroren-group May Day protest event in Osaka, opposing the tax hike proposed by the Noda administration (Asahi Shinbun, May 1, 2012, p.8); in Yamaguchi, a street protest was staged in opposition to the tax hike and demanding that the goverment stick to its manifesto (Asahi Shinbun, June 27, 2012, p.33); and 23 citizens groups and trade unions conducted street protest by parading on 50 cars in Kouchi, opposing the increase of sales tax under the Noda administration in July 2012 (Asahi Shinbun, July 19, 2012, p.33).

Refusal: as noted, therefore, we see substantial and ongoing protest events, of a non-disruptive nature, occurring throughout the period leading up to the first tax hike.

Refusalpublic opposition (non-disruptive), substantial

Obstacles

The main obstacles faced by the DPJ administrations seeking to impose the tax hikes was an indirect effect upon the political elite, in that it prompted considerable internal division as the party sought to deal with the political fallout (especially decline in popular support) resulting from a policy that amounted to a major reversal of its earlier manifesto promise. Opinion was split within the DPJ, with members divided between those who supported the tax increase (34%) and those against (38%) (Yomiuri Online December 8, 2014). This divide also featured at the top of the party. For instance, at the beginning of the DPJ’s period in office, Ozawa, Yosano, and Maehara were each in support of the sales tax increase, whereas Hatoyama and Kan were more hesitant (Asahi Shinbun, January 1, 2010, p.3). These divisions created an ongoing impression of incompetence on the part of the DPJ, for instance resulting in disorganized political leadership as cabinet approval ratings fell from 34% in January 2012 to a record low of 19% in November 2012 (Yomiuri Shinbun, cited in Park and Ide 2014:692).

In addition, to these internal divisions, the refusal experienced to the proposal also ensured that the first attempt to pass the relevant legislation was abandoned by the Hatoyama administration – thereby representing governing problems (i.e. that the problem was not able to be adopted in its first attempt).

Obstacles:
indirect (inter-elite division), governing problems (delayed adoption)

Response

Capitulation

The Hatoyama administration abandoned the proposal for the tax hike following the criticism that the proposal received. Instead moving to adopt a premium income tax rate of 50% for high-income earners as an alternative means of raising government revenue (Asahi Shinbun, June 16, 2010, p.4)

Consent-seeking

One of the main ways in which each of the DPJ administrations (and especially the Kan and Noda governments) sought to respond to the ongoing expressions of dissent regarding the tax hikes was through consent-seeking. In particular, the governments sought to make the case that the tax hikes were necessary in order for the Japanese state to be able to afford improved welfare provisions (Yun, forthcoming: 8).

Modify – Concessions

In addition to consent-seeking, the DPJ government under PM Noda sought to introduce concessions in an attempt to secure improved popular support. This includes a proposal for welfare measures focused on the younger generation, including an enlarged safety-net mechanism for non-regular workers, an increase in the number of day care centers, enhanced benefits for low-income pensioners, expanded coverage of employee’s pension so that they would be extended to part-time and temp workers, and an increase in the pension paid to low-income pensioners (Asahi Shinbun, May 9, 2012, p.5; Asahi Shinbun, May 10, 2012, p.5; Asahi Shinbun, June 27, 2012, p.7). In addition, in seeking to get the tax bill adopted, the Noda government introduced a provision that would allow it to suspend the tax hike if the economy was weak at the time it was due to be implemented (Park and Ide 2014:692).

Concessions: the concessions that were adopted were mainly focused on only indirectly offsetting the effects of the tax hike; moreover, the introduction of the possibility of a delayed implementation did not substantively affect the content of the proposal (and nor did it guarantee that any delay in implementation would occur). We therefore consider the measures to be moderate, in that they had an effect in offsetting the proposal, but fundamentally left it largely unchanged.

Concessions: moderate

Outcome

Went ahead?

Hatoyama proposal: no

Kan/Noda proposal: partly (Bill adopted but voted out of office ahead of implementation)

Consequences (Kan/Noda):

The Noda administration eventually passed the tax hike bill in August 2012 by reaching an agreement with the opposition party, LDP (Asahi Shinbun, August 9, 2012, p.1). Nevertheless, the debate over the tax proved to be so divisive that the DPJ had 70 members of the party leave (Park and Ide 2014:692).  As a consequence of divided opinions among the DPJ members and a resultant disorganized political leadership, popular approval plummeted (Yomiuri Shinbun, cited in Park and Ide 2014:692). The DPJ then lost in a landslide defeat in the December 2012 General Election, dropping from 230 seats to 57 (of 480) in the House of Representatives (Park and Ide 2014:692). As such, we consider the consequences to be substantial for the DPJ.

Sum: the refusal in the face of the proposal for the tax hike by the DPJ prompted obstacles (moderate – indirect (internal divisions) and governing problems (delayed adoption) and some moderate concessions, and was also very problematic in that it was a contributory factor in the subsequent massive electoral defeat suffered by the DPJ. We therefore consider the sum outcome to be: patchy(1), very problematic (2), and partial (2) (1+2+2=5)

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Source: Gene Park & Eisaku Ide (2014) The tax-welfare mix: explaining Japan’s weak extractive capacity, The Pacific Review, 27:5, 675-702.