Purpose of the Cabinet Reshuffle

(TAKAHASHI Yoichi, PPPC Chairman)

Many would call Abe’s new Cabinet as “tax-hike Cabinet.” Indeed, Prime Minister Abe retained Finance Minister Aso and tapped Justice Minister Tanigaki, LDP president at the time of trilateral agreement which decided to raise the consumption tax rate, for LDP secretary-general: a political maneuvering to suppress anti-tax-hike discussions. Tanigaki said in a press conference that the rails are built.

Such views are halfway correct, but the purpose of the Cabinet reshuffle this time seems to be a preparation for a long-term administration and the government should be elaborating measures in eye of economic recovery and growth.

The consumption tax hike is not a choice as economic policy, as repeated many times, but it is politically difficult to topple the idea entirely (it may case anti-Abe campaigns).

In fact, there was a possibility of general election while postponing the tax-hike within the year if Shigeru Ishiba was replaced from all the Cabinet or LDP executive posts and runs for LDP’s leadership race against Abe next year. But Ishiba finally assumed a new Cabinet post aimed at boosting the regional economies (minister not handling personnel of the bureaucrats: often regarded as one-rank lower than other ministers) so Abe does not need to do political gambles any more.

Then, what are possible consequences of the political gambling of tax-hike suspension?

LDP lawmakers have long wanted a tax-hike while they were expelled from the power, and any moves against the tax-hike would confuse them.

The central government officials in charge of budget including the Ministry of Finance will be confused, too. As they already submitted the budget requests premised on a tax-hike, if the tax-hike is suspended they must compile the budget plan once again from the scratch.

Local governments will be frustrated, too. As expectations for distributive policy are increased due to the new position of local revitalization minister, any suspension of tax-hike will disappoint the local government officials. Moreover, it will deprive the new minister Ishiba of his jobs and therefore will likely drive him to stand against Abe once again.

The economic world will be disappointed as well, because the consumption tax hike is always discussed in combination with a corporate tax reduction. Suspension of tax-hike means postponement of corporate tax reduction.

The newspaper companies will also be confused, as they have suggested that newspaper be subject of reduced tax-rates to the MoF, premised on a scheduled tax-hike. If the tax-hike is suspended, automatically the discussion on reduced tax rates will disappear, which will inevitably damage managements of the newspaper companies which are already suffering from the decreasing sales.

Looking at these political risks above, there seems to be no reason for Abe to challenge the gamble after having put down his political rival Ishiba.

Given that the politics is a matter of how much political capital should be allocated to where, any pessimistic discussions like social security will be handled in the LDP side led by Tanigaki. On the other hand, as the economy will likely turn downward due to the tax-hike, the Cabinet side led by Abe will have free hands on the economic measures in large scales. Abe Cabinet will probably announce monetary relaxation and economic stimulus at some point.

It could be said that the reshuffled Cabinet is well organized to settle down the urgent challenges for the moment such as the tax-hike, TPP talks and national security. Yet, it seems to be unfitted to battle the general election, with exception of some fresh faces like the new industry minister Yuko Obuchi. Perhaps the new Cabinet is of a short-relief role, with some expectation for long-term administration. It is a big test for each minister to appoint whom to the newly-established position of Advisor to the Minister, including from the private sector.