Wednesday, July 7, 2010

The Consumption Tax and The Future of Political Discourse

The consumption tax in Japan - now at 5% - needs to increase, everyone knows that. A month ago, give or take, the opposition LDP suggested an increase to 10% in order to help finance social services. The new DPJ president and prime minister Kan ran with it, suggesting a 10% increase. The public is fairly split, but with half the public agreeing that a raise is necessary.

So, we have the two largest parties and half the public in principal agreement on both the need to increase the tax and a rough idea on the rate. It is a fairly simple, self-contained issue with as wide support as any tax-related question is ever likely to get. And what happens? Negative media polls, opposition from retail industry, the LDP contradicting its own platform to score election points, party infighting and jumpy election strategists are now effectively killing the whole thing.

But if a simple, relatively uncontroversial, widely-supported measure like this can't get enacted, then what chance do far more disruptive and controversial issues have? Pension and social security systems will need to be reformed and sooner rather than later. So does the election system (pushed in part by lawsuits); the political and economic relationship between Tokyo, the other urban centers and the rural areas, and many other issues. They'll all be politically far more difficult than a simple tax increase.

If addressing any such difficult issues is proving impossible in the current system, then Japan will be in for a very rough economic and political ride in the future.

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