AMPONTAN

Japan from the inside out

Money matters

Posted by ampontan on Tuesday, February 16, 2010

MONEY MATTERS a lot to the political class, and the money that matters the most is the money they liberate from other people. How else are they going to fund their wonderful schemes to convince us how wonderful they are?

Otsuka Kohei

The technique they use to pay for these wonderful schemes is to pick the people’s pocket, take a healthy cut, wrap the rest in a bright shiny ribbon, breathe a lot of hot air and platitudes on it, and then give it back. As Your Party chief Watanabe Yoshimi noted, the process is similar to an octopus thinking it’s growing by feeding on its own tentacles. The further left of center one goes, the more frequently and more blatantly this is done, and the more self-righteously the hot air is blown.

That brings us to the Democratic Party of Japan’s family allowance proposal to dole out JPY 26,000 (almost $US 290) per child to each family every month. The income tax deductions Japanese parents already receive for their children will be eliminated. After all, how can they be expected to redistribute money to the people without taking it from the people first?

The idea is to give money to every family with children, regardless of the family income. If the family thinks they already have enough money, the national government will make arrangements for them to donate it to local government. Is that not a wonderful plan? “Here’s some of the money we took from you, but if you don’t want it, you can give it back to us.”

The DPJ swore they could come up with the scratch by eliminating government waste. (If that much money is to be gained by eliminating waste, they could stop wasting it, cut taxes by a proportionate amount, and allow people to spend their own money on their children without involving themselves in the process. But that’s not how politicians think.)

Even some in the party pointed out the funding plan was impossible to achieve. But their alternative was to make a bad plan worse—they would force local governments and the private sector to contribute.

Prime Minister Hatoyama Yukio insists that at least one or two of the promises in the party’s election platform be kept, if only for form’s sake. Well, on certain days of the week, anyway. For example, on a Sunday (the 14th), he said:

My idea for the funding source (for the family allowance) is to basically create a mechanism of cutting waste and using the amount saved.

He added that it was possible the government would not be able to provide the full amount promised right away.

Then, on a Monday (the 15th), the noted expert on fund-raising matters said:

Of course we’ll provide the full amount (of the child-rearing allowance) as planned. We’ll find the funds to pay for that by making every effort to cut expenditures.

He got indignant when the press corps suggested he was flip-flopping.

I am not flip-flopping at all!

Well, if a politician’s going to lie, in for a penny, in for a pound, as they say. It’s not as if he has a reputation for honesty to begin with.

He added:

I do not want to float government bonds as the funding source for the child-rearing allowance. That money absolutely will come from cutting expenditures.

Except it won’t—it’s not possible. Also not possible is achieving the stated objective of the program, which is to lift the birth rate.

So, where’s that money going to come from? One possibility is the general fund, which is now being engorged by funds from the “temporary” gasoline surtax. Remember how that money was allocated for building roads? They made the temporary surtax permanent and pointed the sluice in the direction of the general fund. Ain’t reform politics grand?

Another possibility is to boost the consumption tax. In fact, Finance Minister (and Deputy Prime Minister) Kan Naoto said on TV, also last Sunday:

After the budget passes (by the end of February), I want the government’s tax panel to start a comprehensive discussion on tax, such as income tax, corporate tax and perhaps consumption tax and environment tax.

I agree. I say reduce the first two and reject the fourth as unnecessary.

Here’s his justification:

We need to discuss whether the current tax system, which only generates revenues of JPY 36 trillion, is appropriate.

What we need to discuss is whether current government expenditures are appropriate, but that’s not going to occur to Mr. Kan, whose political career started in a socialist organization.

He also said that Prime Minister Hatoyama had agreed with him a few days before.

It’s time to cut and paste that “I am not flip-flopping at all” quote again!

And that’s just what the prime minister did. He reminded Mr. Kan that the party promised during the election campaign the consumption tax would not be raised for four years.

But what happens later this year, after the upper house election, say, when Mr. Hatoyama is no longer the prime minister and someone else—such as Mr. Kan—is?

Show us the money

So, how much of a bite do they want to take for the next consumption tax hike?

Otsuka Kohei, a senior vice minister in the Cabinet Office, gave us a peek at the cat in the bag on the 12th at a debate sponsored by the Japan Institute for National Fundamentals.

Mr. Otsuka is a rising star in the DPJ. A member of the upper house, he’s a handsome fellow whom the party’s called on to question LDP prime ministers in the Diet more than 100 times, starting with Mr. Koizumi. He was also involved in writing the party platform, and, as a former employee of the Bank of Japan, is considered something of a financial expert.

Sakurai Yoshiko, the former newscaster and current director of the institute, and Koizumian reform/privatization guru Takenaka Heizo questioned him specifically on this subject at the debate.

He answered:

At the next general election, we will indicate the percentage to which it should be raised and how it will be used, and receive the people’s decision.

Why?

We must obtain income to turn the primary balance back to the black, so the consumption tax will indeed be an issue at the next election.

Mr. Otsuka also added his personal opinion about that percentage.

As of now, a double-digit figure less than 20% is realistic.

In other words, the ante from now on will be double the present rate.

At a minimum. As of now.

The check is in the mail

Once that funding spigot is turned on, they’ll find all sorts of wonderful things to use the money for. Mr. Otsuka’s specific area of responsibility in the government is the renationalization of Japan Post. Also during the past week—it was a busy week—the government and the ruling party convened a policy council to discuss how to rework the postal operation with its savings accounts and life insurance policies. Jiji Press reported that some ruling party MPs expressed the opinion that “the government and beneficiaries” should assume the costs for uniform services nationwide for post, savings, and insurance.

The idea behind the government paying for uniform services is based on considerations of unprofitable post offices in remote areas, said…Otsuka Kohei. There’s that name again. He also asked:

Aren’t standards for government liabilities required, even if only for the costs for (post offices) placed in those locations as determined by the national will?

Give the man credit for a comprehensive spending plan. He’s going to push the consumption tax up to double digits and then spend it on Japan Post.

Of course they could have left the Japan Post privatization process in place and scaled back their consumption tax dreams, but nah! And did you see how he suggested the government had to fund the whole process because the national will was to provide universal services at remote locations?

The last time the people were asked their opinion specifically about Japan Post in an election, they answered by giving the privatization forces the second-largest margin of victory in the lower house in postwar history.

The Jiji article (in Japanese) noted that the government’s interpretation was that the national government has the obligation to pay for universal service and will outsource the work to Japan Post. Rather than have Japan Post assume the full costs for performing this obligation, the government has another wonderful plan to create a preferential tax system for the entity.

In other words, taxpayers will pay both both directly and indirectly to maintain the network.

And what if they can’t afford it? Well, Mr. Otsuka was one of six Diet members to write an article in the monthly Voice in September 2003 calling for Japan to accept 10 million immigrants. More taxpayers! More money!

The man’s just full of wonderful ideas, isn’t he?

One reason for privatizing Japan Post was to keep the money in the savings accounts and life insurance policies from falling into the clutches of politicians to use for public works schemes.

Speaking of which…

On the road again

That same day, the government submitted the individual allocations for the 2010 public works budget to the directors of the lower house Budget Committee. The government proposes to freeze 49 road construction projects with individual budgets of less than JPY 100 million they’re conducting as national highway projects.

Good idea, right?

But the Ministry of Land, Infrastructure, and Transport called for the freeze of 120 projects during the budget request period at the beginning of last December.

In other words, after thinking about it for two months, the government thought better of it and restored about 60% of those road construction projects.

The common assumption for the cause of the government’s sudden attack of white line fever is their desire to satisfy what were termed “strong requests” by the DPJ and local governments in advance of the summer upper house election.

The bill for those projects will be JPY 60 billion.

Is the reason for renationalizing Japan Post getting any clearer?

Oh, but the national government won’t pay for everything. The plan was to eliminate in FY 2010 the liability of local governments to maintain and manage the roads built by the government. You remember how the DPJ was so anxious before the election to please local politicians in general, and people like Osaka Governor Hashimoto Toru in particular?

The local government liability for these roads will be maintained.

In questioning today at the Diet, Land, Infrastructure, and Transport Minister Maehara Seiji insists that requests from the DPJ were not a factor. But the party still needs some work on its message coordination skills, it would seem. Tottori was the prefecture that benefited the most from the restored projects, and the Yomiuri Shimbun reports that senior officials of the Tottori DPJ branch claim their “strong requests” were the reason for the restoration. Local party officials in the Kyoto Metro District, Mr. Maekawa’s home turf, also took credit for the restoration of road construction projects there, too.

Here’s a thought: Green tea works just as well for Tea Parties as any other kind.

Afterwords:

I’ve had two posts on the government’s family allowance scheme in the works for a while, and it looks like now’s the time to finish them. But in the meantime:

The stated objective is to raise the birthrate. The more likely result—as has happened in the past—will be a depressed birthrate.

When their wonderful plan does not increase the birthrate, the left will claim that the measures were insufficient and that even more government programs and outlays are required.

That’s the only thing the left offers that you can take to the bank.

And if that doesn’t work, Mr. Otsuka can always bring up his plan for 10 million immigrants again.

The real objective is implementing a dependency agenda. The idea is to keep the people gnawing on the government’s shin, as the Japanese put it, from birth to death. A self-reliant populace?

That doesn’t matter. It’s counterproductive, not to mention counter-revolutionary.

5 Responses to “Money matters”

  1. RMilner said

    Reduction of tax allowances for dependants to fund a flat rate child allowance paid in cash is a good way of redistributing income from high earners to low earners. (If that is a social goal.) For example, my wife earns under 2 million yen per year, so she can’t claim any tax allowance for our daughter. The 26,000 yen cash will be a huge benefit to her.

    I doubt it will increase the birth rate. There are many other problems facing women and family life in Japan apart from the financial cost of raising children. Things such as work-life balance also need to be addressed.

    The dependency issue is two-fold. The Japanese are socially much more collective minded than Americans, so a culture of co-dependency between the community, large companies and the government is quite natural for them. However, the dangerous dependency is the one between large companies, the government and vote farming — pork barrel in other words. That’s where the Japan Post savings come into the equation.

    There’s actually nothing wrong with the government or local government investing in infrastructure so long as it is worthwhile, productive infrastructure. We all know, though, that a lot of the infrastructure gets built as a way of funnelling tax money to companies and rural districts to buy votes and amakudari (if that is the right spelling.)

  2. soma36 said

    So, how are simple across the board tax cuts going to solve the demographic issue? The very problem is that there are not enough families with children to spend what would be a watered down extra amount of $$ on(from a broad based tax cut) in the first place. The time for finetuning has well and truly passed!

    I think you are misrepresenting this a little too – has anyone actually said that the child allowance alone is going to solve the issue? Assuming policy makers are not that stupid, you are going to have to come up with some pretty convincing microeconomic analysis in your coming posts to convince us that money will not act as a (very) strong partial incentive in the procreating children decision making process! I await with keen interest.

    As for the GST increase and dawdling on the Japan privatisation, I am likewise concerned. I think in general the GST instrument is only necessary when you have a large problem with tax avoidance and when you are trying to discourage consumption in favour of savings……something that Japan hardly needs. Or if you are trying to introduce a regressive tax system because the poor have too much money, damn them. (Assuming you cut other taxes at the same time).
    —————-

    So, how are simple across the board tax cuts going to solve the demographic issue?

    No government anywhere can solve any demographic issue by any means, unless they use a sword. The Chinese could have solved their overpopulation problem by going to a free market economy, by which people get gloriously rich, and have fewer children, as the rest of the world has shown.

    People don’t have 6 or 7 kids anymore because half die in infancy and the other half are needed to bring in the crop.

    Nature has a way of working these things out itself. It will even work out the male overhang in China, eventually.

    has anyone actually said that the child allowance alone is going to solve the issue?

    That was how it was originally presented. Fukushima Mizuho even justified it by saying that surveys showed the reason people weren’t having children was because they couldn’t afford it, so this was supposed to make it easier to afford.

    If having enough money is the problem, don’t take it from them to begin with. There are plenty of ways to do that. Step one: The US manages to get by with a few more than 500 national legislators. Why does Japan need more than 700?

    Assuming policy makers are not that stupid

    Whether she actually believes it or not is another question. The dependency agenda on her patch of the political turf is real. Once a government starts giving away money, it is difficult to form a consensus to get them to stop.

    Political debate then plays out on their battlefield, as is mostly the case in Europe. The non-left parties are forced to say that they would be more efficient in operating the welfare state, rather than dismantling the welfare state.

    It doesn’t have to be an economic analysis, BTE. Governments have tried this and it doesn’t work. The birthrate went down in pre-war Italy.

    It has gone up very slightly in France, but there are several mitigating factors, not the least of which is a growing Muslim population. Statistical analysis is not possible there because the French won’t release a statistical breakdown based on ethnicity/religion.

    – A.

  3. soma36 said

    I will concede that social engineering to a fine point is both impossible and extremely undesirable – but to argue against doing anything to lessen the pain (so for example, you do not have to open up the immigration floodgates) seems a little bit premature. The science of demographics is indeed problematic, but on the other hand, letting nature sort things out without even trying to influence its “flow” could be very dangerous – I suspect that the solution to the male overhang problem in China, if the government was to do nothing, would probably be civil disunity, mass internal violence, or more……the problem would surely be solved but…..your answer maybe that it will happen anyway, if it is to happen, but I am not sure – these things are very path-dependent.

    I think we are using the policy makers term quite differently! I have no love at all for SDP and Ms Fukushima, and she may well be as daft as you suggested, but I am suggesting that behind all of this is some policy analysis by reasonable people who have considered wide range of issues. After all, this was a policy that has been suggested for some time. While I doubt the efficiency/transparency of the Japanese bureaucracy (and most for that matter) I do not doubt that for a second that they lack intelligence.

    I know first hand how much politicians like to take the credit for other people’s thinking by using personal but trite and irrelevant anecdotes!! The also tend to like to change things to put their own “touches on it” (often undermining it) and when they defend their policy they usually go off script.

    As for the European experience, well, correlation does not imply causation and we do not know if the policy did make things worse, or perhaps maybe less worse than they would have been, so to speak. As you point to, there are mitigating and confounding factors to consider, not withstanding sociological ones. Also, I don’t necessarily know that the European experience automatically equates to the likely Japanese one. Actually very likely not. It could be worse…….it may not be. For me, a comparative analysis between the failures in Europe and Japan in order to deduce the economic and sociologically relevant factors would be what I need to see before believing this would fail. To be fair, I would likewise want to see a similar analysis that proves in the same way why it might succeed in Japan. I have not seen that, so I am going on intuition and experience – and it tells me that it won’t lead to a depression of the birthrate – if that was even possible.
    —————
    The birth rate of males does go up slightly in wartime, as I read years ago. When females are at a premium in society, the reverse should be true. Nature just works on a longer time frame.

    – A.

  4. soma36 said

    As for the legislator’s bit ( I missed that). We have that argument in NZ too, but its always a red herring. If we reduce the number of MPs from 120 to 99 then we will save 21/120th (17%) of expenditure on goverment!!!LOL11!! Ummmm, no. I am not saying you are suggesting that, but, even halving the number of reps in Japan would only bring us, even assuming each rep costs $1million including overheads, $350 million dollars.

    We might want to reduce the number of MPs but that would be for electoral and constitutional design reasons (electoral gridlock/overrepresentation of one party etc)

    Anyway, I am being pedantic – there is much bigger inefficient fish to fry.
    ————
    Step one!

    And it would start by setting a good example.

    – A.

  5. soma36 said

    haha, that is interesting. Let’s hope the world does not plunge into a disastrous war before nature “rights itself”. I guess unfortunately for me, I have to pay taxes on my own life’s timescale – and this means whether I live in NZ or Japan, I will be supporting a lot of short sighted old people on my own dime!!

    Anyway, as an example of what I was suggesting I guess this shows how complex these things are though:

    Click to access 3009.pdf

    I also read recently a more updated article on war in particular which I can’t find that suggests the same thing. Which would thus mean that during wartime despite fetal sex selection favouring girls, we see social factors, if what you say is true, changing this natural disposition the complete other way around!
    ————————————————————————————————-
    BACKGROUND: Exposure to severe stress in early pregnancy is associated with a lower male to female ratio (sex
    ratio), but whether more moderate levels of psychological discomfort have the same kind of effect is unknown. In a
    population based follow-up study, we aimed to test whether psychological distress was associated with the sex ratio
    in the offspring. METHODS: From 1989 to 1992, a cohort of 8719 Danish-speaking pregnant women were followed
    until delivery. Questionnaires were administered to the women in early pregnancy and 6629 (76%) completed the 30-
    item version of the General Health Questionnaire (GHQ). RESULTS: We found an overall male to female ratio (sex
    ratio) of 1.03. There was an inverse dose response association (test for trend P < 0.01) between GHQ score and sex
    ratio. Each 5-point increase in the GHQ score was associated with a decreasing odds of having a boy [Odds ratio
    (OR) 5 0.93, 95% CI 0.89–0.98]. Mothers scoring in the upper quartile of the GHQ had 47% boys as compared
    with 52% in the undistressed groups (Risk difference 54.8%, 95% CI 1.9–7.7%) resulting in a significantly lower
    sex ratio of 0.85 compared with 1.07 (OR 0.82, 95% CI 0.72–0.94). CONCLUSIONS: Our results suggest that not
    only severe stress, but also more moderate and common levels of psychological distress, may decrease the sex ratio
    in the offspring. Stress during pregnancy is a likely candidate involved in the decreasing sex ratio observed in
    many countries.

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