Friday, August 9, 2013

Will Abe lead on the consumption tax?

On Friday, Prime Minister Abe Shinzō headed off (jp) to the mountains in Yamanashi prefecture for an eleven-day summer holiday. He leaves behind a growing debate in Tokyo about the wisdom of proceeding as planned with the consumption tax hike scheduled to be phased in from 2014-2015 (5% to 8% in April 2014, 8% to 10% in October 2015). Abe has said he will make his decision about the tax sometime over the next two months, leaving proponents and opponents of the hike to make their cases once again.

Arguably the supporters of the tax hike won several victories this week.

First, at the start of the week the IMF advised the Japanese government to stick to the plan as concluded in 2012, arguing that the tax hike will signal the government's commitment to fiscal restructuring and will therefore bolster investor confidence. The IMF has been saying that the consumption tax rate should rise to 15% for years now, so its advice for Japan is not new. But the fund's intervention gives proponents an important international backer as they make their case to the prime minister.

The next victory for proponents of the hike came on Thursday. Bank of Japan President Kuroda Haruhiko, speaking to the press after the BOJ policy board's regular meeting, voiced his support for raising the consumption tax and said (jp) that the BOJ's radical monetary policies and the planned hike were not incompatible. Like the IMF, Kuroda stressed the importance of reassuring investors that the Japanese government is serious about getting its financial house in order.

Finally, on Friday the Nikkei Shimbun ran a major article (jp; registration required) — basically an editorial — addressed to senior government officials who are "nervous" about the consumption tax increase that sought to reassure them that raising the consumption tax next year would not be like raising the consumption tax from 3% to 5% in 1997. The article opens by explaining that the 1997 hike came in the midst of a regional financial crisis and at a time when the balance sheets of Japanese banks and corporations were loaded with bad debts. Having established that 1997 was a particularly bad time to raise the consumption tax, Nikkei pivots to say that since banks and businesses have more "stamina" today, it's appropriate to take on the challenge of the national debt in order to reassure global financial markets, which, Nikkei reminds us, are roughly three times larger than they were in 1995. With that in mind, the article warns that at the first sign that the government is not serious about raising the tax, investors will short Japan in a heartbeat.

As arguments on behalf of austerity go, there is nothing earth shattering in the Nikkei article, in fact it contains pretty much the same arguments that Paul Krugman has critiqued for years, including in this 2010 column: the "confidence fairy" and the "bond vigilantes." But the arguments are less important than the reality that Japan's powers that be are lined up behind raising on the consumption tax on schedule in April 2014. The tax hike not only has the support of the BOJ president and Japan's leading business daily, but also the head of Keidanren (jp) its most powerful business lobby; Amari Akira, Abe's own minister for economic and fiscal policy; and leading members of the LDP, which has, after all, campaigned on raising the consumption tax for the last several elections. Of course, it almost goes without saying that the ministry of finance wants to see the tax hike proceed as scheduled.

The forces arrayed against the tax, at least at the elite level, are thinner. Hamada Kōichi and Honda Etsuro, Abe's leading economic advisers, have both voiced skepticism about the current tax hike plan, with Professor Honda's arguing (jp) that the tax should be phased in at 1% a year rather than in two phases. Saitō Tetsuo, the chair of LDP coalition partner Komeitō's taxation committee, has stressed the need to take economic conditions into consideration when deciding whether to go forward with the hike. Beyond elite circles, perhaps most significant fact is that the public is overwhelmingly opposed to the tax hike: Asahi's post-election opinion poll found (jp) 58% opposed and only 30% in favor.

Given that sustainable, robust growth is still far from assured — and that wages have yet to rise, suggesting that consumers would really feel the sting of the tax hike — the facts are probably on the side of the skeptics. The proponents still have to explain (1) why the confidence of global markets is so important when, as Michael Cucek reminds us, Japan is largely invulnerable to "bond vigilantes" and (2) why confidence would evaporate now as opposed to anytime over the past decade of swollen deficits. If anything, delaying the consumption tax hike should signal to financial markets that the Japanese government is serious about reviving Japan's economy.

But this week shows that the facts have an uphill battle against a good portion of the Japanese establishment (with the support of international actors like the IMF). After finally securing a plan in 2012 to raise the consumption tax, they are not about to let the Abe government back out of its commitment. With the final decision resting on Abe's shoulders, this issue is as good a chance as any for Abe to show that he can be the strong, decisive leader he claims to be.

Friday, August 2, 2013

The real problem with Asō's gaffe

After the uprising of the 17th of June
The Secretary of the Writers' Union
Had leaflets distributed in the Stalinallee
Stating that the people
Had forfeited the confidence of the government
And could win it back only
By redoubled efforts.
Would it not be easier
In that case for the government
To dissolve the people
And elect another?

Bertolt Brecht, "Die Lösung" (1953)
Deputy Prime Minister/Finance Minister Asō Tarō kicked off the second leg of the second Abe government with a fine contribution to the hall of fame of gaffes committed by Japanese politicians.

Speaking at a symposium hosted by the right-wing Japan Institute for National Fundamentals, Asō spoke about how the Abe government should approach constitution revision. He said:
Now if you say "let’s do it quietly," you need to look back at the Weimar Constitution, whose amendment went unnoticed. It was changed before most people realized it had happened. We need to learn from this. I have absolutely no intention of rejecting democracy. But I don’t want to see us make these decisions in the midst of an uproar. 
(That's from a translation by Peter Durfee; the full text of his remarks can be found here.)
The resulting international uproar — usually presented under headlines like "Japanese Finance Minister Taro Aso comes under fire for Nazi remarks" — has resulted in Asō's coming under pressure to resign from opposition parties, and under pressure from the prime minister (jp) to retract his remarks. He has retracted, but has said he will not resign.

However, in my reading of his remarks, Asō's interpretation of how the Weimar constitution was revised may have been the least offensive aspect of his speech. What's offensive about Asō's speech is the arrogant disdain for the messy reality of democracy, the lament of every would-be utopian in history eager to ram the square peg of humanity into their round hole of choice. Asō repeatedly bemoans the "boisterousness," "tumultuousness,"and "uproariousness" present in public discussion of constitution revision. He seems to say, Why can't the people see that we know what's best for them? Can't they see that the facts demand revision? I read this less as a blueprint for revision than as a whine about how it's all the fault of the public and the mass media for how little success Japan's revisionist right has had when it comes to building a consensus in favor of their vision of the constitution.

Why shouldn't the debate be boisterous? Why shouldn't there be uproarious and fierce opposition when the debate is about the document that serves as the nation's moral center — especially when the LDP's draft makes no secret of its plans to change the values enshrined in the constitution?  Why shouldn't Japanese defenders of the constitution feel just as strongly about defending a document — a document that, whatever its origins, has become an important pillar of postwar Japanese society — as the revisionists feel about changing it? Who are Abe, Asō, and company to decide whether a debate is being conducted appropriately or not?

At its best, liberal democracy is "boisterous" and "uproarious," because if the people have the freedom to speak their minds, there is bound to be a tumult. Politicians seeking order, politeness, and decorum can find some fine examples in Japan's immediate neighborhood.

In the final analysis, I don't think Asō was longing for an end to democracy or outlining a secret plan for constitutional revision. Rather, he has once again revealed a fundamental fact about his and Abe's worldview: they have no problem stating their love for democracy as an abstract idea, a value to be promoted in East Asia and a rhetorical cudgel with which to bludgeon China, but they have little love for democracy as it is actually practiced in Japan.