AMPONTAN

Japan from the inside out

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.

Ota Hiroko

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.

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38 Responses to “Japan’s economy no longer “first class”?”

  1. bender said

    Gasoline (in my neighborhood) sells for about 145 yen per liter, or roughly $US 5.10 per American gallon

    This is crazy! It’s even higher than California! How is the LDP going to revitalize the Japanese economy when it intends to keep consumer costs ridiculously high?

  2. john k said

    Tax on fuel in the UK is at 86%. So in comparison, Japan gets off lightly.
    Fuel cost in UK is roughly around 230 Yen per litre.

  3. bender said

    How much does beer cost per litre in England?

  4. john k said

    Im not a beer drinker, but from memory, it is about 500~600Yen a pint, depending on the brand. A pint is 0.568litre, so double it, roughly, and you get the cost per litre.

  5. Aceface said

    “This is crazy! It’s even higher than California! ”

    That has always been the case,Bender.And people still wonder why we build small cars…

    I’ve also heard the shortest ride on London underground is 1000yen….

  6. john k said

    Shortest ride in London on the tube, from memory is around 300~400Yen.

    But looking at food stuff’s

    Potato/kg
    Japan, 350yen, UK, 20/30Yen
    Carrots
    Japan, 250Yen, UK, 20Yen

    Fruit
    Oranges each:
    Japan, 100Yen, UK, 30Yen
    Grapefruit
    Japan, 180Yen, UK 60/70Yen
    Watermelon
    Japan 1500Yen, UK, 500Yen.

    Tomatoes/kg
    Japan, 500Yen, UK 20/30Yen

    5kg bag of quality rice
    Japan, 2~2500Yen, UK 800~1000Yen

    Beef/kg
    Japan 7000Yen, UK, 1000Yen

    Salmon/kg
    Japan and UK about the same.

    Crab/kg
    Japan, 10,000Yen, UK, 4000Yen.

    Bar of average chocolate
    Japan 150Yen, UK, 80/100Yen.

    Bottle of Whisky
    Japan, 1500Yen, UK, 2500Yen.

    A Brand New car is twice the price for same model as Japan, in the UK.

  7. Aceface said

    I can understand agricultural protectionism is to be blamed on veggie price.
    But.
    Could somebody make the logic on “Bottle of Whisky Japan, 1500Yen, UK, 2500Yen”?
    That stuff is supposed to be from Scotland,No?

  8. bingobangoboy said

    Good post…

    It’s worth remembering that the US has the lowest gasoline prices in the industrialized world; far lower than most. I’m pretty sure Japan is still in the cheaper half among that group. Of course, comparisons between countries aren’t by themselves good arguments for or against keeping the gasoline tax.
    Comparing consumer prices between countries is also a little complicated in the case of countries whose currency has been significantly changing in value (as in both the US and Japan, which is one reason you might have seen Japanese & US cities dropping down those lists of “world’s most expensive cities” in the past couple of years).

  9. john k said

    Aceface

    Tax!

  10. john k said

    Letting it run as long a possible ‘just to see’ if anyone picked this up…, however, a week or two ago I would have been surprised at the lack of comments on:

    “…public opinion could be the decisive factor. That would certainly be a new development for Japanese politics…”

    Not any more.

    Don’t ask questions, just go with the flow….

  11. Aceface said

    Yeah,but there is tax upon alcohl in Japan too.
    I know Maggie Thatcher was keen on removing trade barrier on whisky is the 80’s though,but cheaper than in UK…But then again,I’ve also read an article from former Nouvelle Observerteur
    correspondent mentioning french wine is cheaper in Tokyo than Paris…

    “Letting it run as long a possible ‘just to see’ if anyone picked this up…, however, a week or two ago I would have been surprised at the lack of comments on:

    “…public opinion could be the decisive factor. That would certainly be a new development for Japanese politics…””

    Awright enough with irony,since we are now about normalize our relationship here,so that Mac can comeback.

    Election is coming soon,and according to the word of Fukuda,”LDP is facing biggest crisis since establishment in 1955″. No surprise hearing public opinion can be the decisive factor in J-politics.

  12. john k said

    Alcohol, the very same bottle is much cheaper in Japan than in the UK. Tax is higher on alcohol in UK than in Japan.
    Whether it is home grown stuff or imported…same with fag’s.

  13. Bern said

    Gasoline in Norway costs around 240yen per litre. Beer costs around 1000 yen for 500ml or more often than not closer to 1200 yen for 500ml. Japan is no longer an expensive country and Tokyo does not top the list of being the most expensive city any longer.Japan does not feel that expensive.

  14. bender said

    I agree with that the currency exchange rate has to be taken into mind (so if you travel to the EU with Japanese yen, it’s horrible), and I would also like to note that Japan’s per capita GDP is worsening compared to West European Countries…so comes in the argument of purchase power parity. According to some figures, Japan’s ppt/GDP is lower than Great Britain. It’s definitely lower than the US and Norway. Japan’s consumer economy is weak.

    I don’t expect the situation to improve with the Japanese people seemingly favoring protectionism over “dynamic change” (industry shift).

  15. bender said

    Thanks, ampontan…

    How’s the economic situation in Kyushu?

  16. ampontan said

    Kyushu’s recovery is lagging the big cities statistically, but things are happening here and there. Nowadays, growing numbers of midsize and smaller companies are just as likely to look to East Asia for sales as they are to Kanto/Kansai.

    Business/political leaders are extremely interested in the 州制度 plans being discussed, which I want to write about, but I’ve got a month of material just waiting for me to get to it!

  17. Willie said

    If the US is anything to go by, Japan better raise the prices of food or they’ll become fat and unhealthy.

    If you want another case where taxes are low in Japan, consider the consumption tax. The Yomiuri has pointed out how it’s just too darned low here. Even South Korea’s is 10%.

  18. bender said

    How’s the income tax?

  19. Bern said

    Is Australia expensive? I hear the real estate price around Sydney is very expensive.

  20. Bruce Smith said

    Bern – Just from memory Sydney prices doubled somewhere between 1995 and say 2000. (I should know – I sold in 1995…. doh is me). My anecdotal un-researched impression is that Sydney is more expensive to live in than Tokyo.But it’s hard to make meaningful comparisons – in Sydney houses & land are usually much bigger plus the suburbs are much greener (more trees) than Tokyo. Not to mention the harbour. So in some ways it’s reasonable that Sydney real estate should cost more than Tokyo real estate. With the current coal & minerals export boom Australia is richer than Japan.

  21. Bruce Smith said

    Indeed now some Australians invest in real-estate in Japan e.g. ski resorts. Ten or twenty years ago it was the other way around.

  22. Aceface said

    “Indeed now some Australians invest in real-estate in Japan e.g. ski resorts. Ten or twenty years ago it was the other way around.”

    That was on today’s Asahi(evening). Niseko’s Hirafu district is nation’s No.1 growth on real estate price in 2006 and 7.
    Some of the locals are concerning the tourist money only circultates among the Aussies.
    Now,did I hear same sort of story before.

  23. bender said

    Some of the locals are concerning the tourist money only circultates among the Aussies.

    How can that be? Are they complaining that they stay at their own places rather than local Japanese-owned hotels? But they pay for lift tickets and buy local food, don’t they? Not to forget that they’re purchasing land. Also, you have to use transport to get to Niseko from Chitose…now is that Australian-owned? Even if that is the case, is the driver Australian? Where do they get the gasoline and have the bus/car placed into maintenance? Sounds like Asahi’s being xenophobic.

  24. Bruce Smith said

    I sympathise with the locals’ sentiments. Yes there is an Aussie owned shuttle-bus running between Chitose and Niseko and the driver is reportedly an Australian. But on the other hand this is just the same as what Japanese tourists did in Hawaii and Australia etc.

    Mass tourism ruins every destination. I wish Niseko had never been ‘discovered’ by us Aussies (even though I am partly to blame).

  25. Bruce Smith said

    And Hanazono resort is Australian owned.

    But on the other hand Lone Pine Koala Park in Australia was Japanese owned (and maybe still is).

    It’s globalization and it’s unstoppable.

  26. tomojiro said

    This is all in Japanese but an interesting report from a Japanese blogger about Niseko and internationalization of ski resorts.

    http://www.asahi-net.or.jp/~VR3K-KKH/niceshortstory/story13/nisekoskiarea.htm

  27. Bruce Smith said

    It was inevitable. Even back in the early 80s when I worked at Rusutsu there would very occasionally be other non-Japanese e.g. Americans or Australians. And sometimes Chinese tour groups.

    Thanks for that link. I have been called いそうろう many times in the past ;-)

  28. Bruce Smith said

    See: http://www.outdoorjapan.com/contents/current_issue/1137732336/1141044070?language=japanese

    Where it says: 一緒に働いていた2人の外国人はオーストラリア人で、スノーボードにハマっていた。

    One of those guys was me. The year was 86. My third season at Rusutsu.

  29. Aceface said

    “Sounds like Asahi’s being xenophobic.”

    Bender,Asahi didn’t write that.I read it in somewhere.And the tone was sort of toungue in cheek. We all know that was the criticism we get from elsewhere on the globe in the 80’s and I thougth this “trading places” situation was kind of funny.
    I believe there is no Anti-Aussie feeling in Niseko or anywhere else as I know of.

  30. Aceface said

    I mean the “feeling of the locals” part.

    “But on the other hand Lone Pine Koala Park in Australia was Japanese owned (and maybe still is).”

    Now,really.That sucks.

  31. bender said

    First time I ever knew there were snowboarders in Japan, way back in 1985. Fascinating.

    There are lots of good ski areas in Hokkaido, but many of them are in pretty bad shape financially. I know one that shut down because of the Prince Hotel group crunch (Tsubetsu). It’s too bad…

  32. Bruce Smith said

    Bender – The first time I saw snowboards in Japan (or anywhere else) was in November 1982 at Rusutsu when I met Jake Burton of Burton Snowboards who was on a promo/business trip. I bought my first board from Minatomichi-san at Popeye’s House in Sapporo the next week. But that season I was the only boarder that I ever saw at Rusutsu. And I went to Niseko for 1 day that season. But I imagine that there were Japanese riders elsewhere in Japan even back then. By 1986 it was quite popular at Rusutsu and one of the instructors Seki-san was the Japanese champion and had competed in USA.

  33. Aceface said

    Off topic.
    There are certain amount of Kiwi population in that part of Hokkaido.There are lots of race horse farms in Hidaka area hiring Kiwi and Irishmen as horse trainer.

  34. Bern said

    I want to go to Australia despite its ridiculous anti whaling sentiment. And to NZ too. It seems so exotic seen from a Scandinavian perspective yet so similar in many ways. Japan got excellent ski resorts with mad onsens. I am Norwegian so I know what I am talking about. Austria got the best ski resorts in Europe but Norway got good ones too.

  35. Bender said

    Austria got the best ski resorts in Europe but Norway got good ones too.

    No wonder these two countries take all the Olympic medals in Alpine skis.

  36. ampontan said

    Bern: I’ve been to Australia. Everybody who goes to Australia loves it. I read somewhere recently that nobody from another country in the English-speaking world really considers them foreigners. It’s hard to explain, but I know what he means.

  37. Bruce Smith said

    I insist on my right to be considered a foreigner ;-)

  38. bender said

    You’ll come a waltzing matilda with me!

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