Tuesday, June 22, 2010


So, we have some elections coming up. Now and again I feel the urge to write about them, but then I take a quick look at my work schedule for the year, re-enter panic mode and forget all about it.

But, in short: We have the Japanese upper-house election on July 11th, and the Swedish general election on September 19th (it's always on the third Sunday in September, four years after the last one).

For the Japanese election, it seems the exit of Hatoyama and Ozawa will indeed save the DPJ:s bacon. Moreover, Prime minister Kan has performed a neat little bit of political judo on the LDP. Basically, Japan's finances are a godawful mess. Serious budget cuts are necessary, but everyone knows that's not enough and taxes will need to be raised.

Specifically, the consumption tax - now a low 5% - will have to be raised at some point. Why the consumption tax? Because it's one of the few taxes that bring in enough money that raising it can make a meaningful difference. It's also one of the taxes that are "fair" and don't bring a lot of unforeseen side effects. A tax on wealth, say, would not bring in anywhere near as much money, and would have all kinds of undesirable side effects (pensioners losing their ancestral home or personal savings, that sort of thing) that would require special exemptions and odd solutions. The major drawback with the consumption tax is that it is regressive, in that poorer people (who have to spend more of their income on consumption) pay a larger part, but there are several possible ways to mitigate that.

Anyway, everybody knows about the consumption tax, and politicians have mumbled for years about the need to raise it at some unspecified point in the future. The LDP, recognizing that they need some hook, something to make a splash in the election, wrote in an increase to 10% in their election manifest just recently. The idea was probably to argue that they have specific proposals, specific solutions while the DPJ refuses to face up to hard realities or something to that effect.

But Kan basically took that number and ran with it; he stated that 10% is a reasonable figure, let's raise the tax soon as a way to improve public finances and shore up the pension system. Having the opposing team happily agree to your proposal was not what the LDP had in mind. They more or less stated that it was unfair of the DPJ to agree with them, and that there was no way they would support such an absurd proposal as the one they had in their own election manifest.

As Shisaku reports today, now the opinion polls are in, and the results are fairly encouraging. Cabinet support is dropping slightly - something likely to happen with or without the tax discussion as the novelty of Kan wears off. The LDP doesn't really move anywhere. Kan has in other words managed to grab a long-running problem - how to decide on a specific tax increase and break the news to an unhappy electorate - without taking a real hit in the polls, and without giving the opposition a boost. And he managed to do so a few weeks before the election, so a decent election result will be seen as a mandate to go ahead.

It's worth noting is that there's a second part to the tax proposal, a reduction in the corporate tax rate. I'm not knowledgeable enough to have any firm opinion on the matter, but I do note that the current quoted rate of about 40% sounds rather high; a quick look at worldwide rates puts Japans rate at about the highest in the world. Average rates seem to cluster around 25% or so. Perhaps a good idea, in other words, though I can't really say.

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