Japan’s economy no longer “first class”?
Posted by ampontan on Sunday, January 20, 2008
JUST AS THE JAPANESE ECONOMY seemed to be waking from a nearly 20-year coma as if it were a Far Eastern Rip Van Winkle comes some discouraging words from Ota Hiroko, the Minister of State for Economic and Fiscal Policy. Delivering the government’s economic address at the start of the new Diet session (roughly an economic state of the union speech), Ms. Ota said the Japanese economy could no longer be termed “first class” despite the ongoing expansion, the country’s longest in the postwar period.
She cited as one reason for her assessment the fall in the country’s per capita gross domestic product to 18th among the 30 member nations of the Organization for Economic Cooperation and Development in 2006, the sixth straight annual decline. She said the country had been left behind by the dynamic changes in the global economy, and that it had not formulated a framework for continued growth.
Ms. Ota also noted that Japan’s share of aggregate world income had fallen below 10% for the first time in 24 years.
This address provides the backdrop for what many observers think will be the most contentious issue of the current Diet session, the government’s proposal to renew a temporary surtax on fuel.
Two Gas Station Bills in a Row
The debate in the Diet between the government and the opposition has shifted from the renewal of one gas station law to another. During the extraordinary session of the legislature just ended, the Diet passed a bill resuming the Japanese contribution to NATO’s military efforts in Afghanistan by refueling their vessels in the Indian Ocean. MPs will now discuss the renewal of a tax that will determine just how much drivers will pay at the pump when they refuel their cars—and gasoline prices have soared here as they have everywhere else.
The temporary surtax was levied in 1974, nominally for just two years, to cover a shortfall in the revenue needed to pay for a five-year plan for road construction that had been implemented the year before. Japan in those days was still very much in the Era of Rapid Growth mode. But politicians everywhere are loath to abandon cash cows, so it’s no surprise that successive governments kept renewing the tax for more than 30 years (though its Japanese name still contains the word “temporary”).
The legislation authorizing the tax will expire at the end of March, which is the end of the Japanese fiscal year. The ruling Liberal Democratic Party wants to keep the tax alive, while the primary opposition group, the Democratic Party of Japan, wants to kill it.
The basic tax on gasoline is fixed at 24.3 yen per liter by law, and the temporary tax doubles that. Gasoline (in my neighborhood) sells for about 145 yen per liter, or roughly $US 5.10 per American gallon, so the levy is both a substantial revenue source and a burden on business and the consumer.
The LDP argues the measure will serve as a de facto carbon tax and help the country cut carbon emissions by reducing gasoline consumption. Meanwhile, the DPJ claims the tax hurts people with lower incomes.
Of course there’s more to it than that.
Supporters of the Status Quo
Since the tax revenue is used for road construction, extending the tax will keep the spigot open for public works projects, delighting the large construction companies. Construction industry support for the LDP over the years is one reason the party has dominated Japanese politics for so long.
One aspect of the LDP’s recent governmental reform efforts, however, has been the attempt to loosen the grip on power of the so-called Iron Triangle of interlocking interests between business interests, the party, and the government. This has naturally led some of the party’s traditional supporters in the construction industry to shift their support from the LDP to the DPJ. (Despite the DPJ’s calls for real reform, one of their strategies for gaining control of the government is to assume the role of pork distributor after the LDP abandons the field.)
Another group typical of those supporting the continuation of the “temporary tax” is an association in Kyushu formed to promote the construction of the Kyushu leg of the Shinkansen high-speed railway, now partially open and scheduled for full completion in three more years. The association’s members are not just business interests; the governors of the four prefectures through which the main route will pass are also involved and strongly support the tax measure. Their primary concern is how they’ll be able to afford the infrastructural improvements needed in conjunction with the Shinkansen, such as access roads.
And the governors of the eastern Kyushu prefectures, where the Shinkansen will not run, are anxious to see the tax retained because they were mollified with the promise of a major expressway construction project after they complained that the western part of the island was getting all the pigmeat with the Shinkansen extension.
Those Seeking Relief
Opposition to the tax is not simply populist sentiment, however. The higher fuel prices hurt small businessmen, farmers, and fishermen. One representative of the maritime industry told a regional newspaper reporter that the average income of fishermen has fallen by half over the past five years because of declining catches, and that higher fuel prices are causing even more pain. (It takes a lot of money to fill up a fishing boat’s gas tanks.)
Finding themselves in the same boat, but on dry land, are the small independent farmers who also require fuel to operate their equipment, and who, like the large construction companies, also turned their back on the LDP in last year’s upper house election to switch to the opposition for similar reasons. Finally, smaller construction companies are clamoring for cheaper gas even though they realize it will mean a commensurate decline in public works projects. The owner of a small construction company in Nagasaki told the same reporter that conditions have become so bad that several companies in his area have sold some of their vehicles.
Both sides make valid arguments, and the resolution of the matter will benefit some at the expense of others, as well as influence trends in the no-longer-first-class economy.
Because this issue is more likely than the Indian Ocean refueling issue to have a direct impact on the lower house election many observers expect to be called later this year, public opinion could be the decisive factor for resolving the debate. That would certainly be a new development for Japanese politics.
On the one hand, the business-friendly, right-of-center LDP is behaving as if it were the Green Party when it talks up the merits of the tax, while the left-of-center, labor union-backed DPJ finds itself supporting a measure that will primarily benefit small businessmen, farmers, and fishermen in the private sector in addition to the general consumer.
Perhaps that’s what they mean when they say politics makes strange bedfellows.