Comparison of Party Platforms (1): Policy on Consumption Tax and Finance

The Lower House general election was officially announced on December 2 and the political parties entered the ballot race. The ruling and opposition parties will struggle over 475 seats (295 small districts, 180 proportional representation in 11 blocs) for 12 days until December 14.

The main policy issues for the election include the continuance of the Abenomics, national security legislation including exercising the right to collective self-defense, resuming operation of the nuclear power plants, etc.

This week, let us summarize the parties’ policy on the consumption tax and financial reconstruction which Prime Minister Abe recognizes as the top-priority issue in the campaign.

Liberal Democratic Party

https://special.jimin.jp/political_promise/bank/index.html

Komeito

http://www.komei.or.jp/campaign/shuin2014/manifesto/manifesto2014.pdf

Democratic Party of Japan

http://www.dpj.or.jp/global/downloads/manifesto2014.pdf

Japan Restoration Party

https://ishinnotoh.jp/election/shugiin/201412/pdf/manifest.pdf

Party for Future Generations

http://jisedai.jp/news/20141122.html

Japan Communist Party

http://www.jcp.or.jp/web_policy/html/2014-sousenkyo.html

1.         Consumption Tax

LDP	l  To be hiked to 10% in April 2017 l  Reduced tax rate to be introduced at the time of tax-hike after considerations on the subject item, finance and revenue and acquiring consents of relevant actors and the public l  All the revenue from the consumption tax to be spent for social security
Komeito	l  Reduced tax rate to be introduced at the time of tax-hike to 10% in April 2017 l  Subject item, finance and revenue of reduced tax rate to be considered
DPJ	l  Consumption tax-hike to 10% to be extended (reasons include the worsened economy due to the Abenonomics, non-execution of social security stabilization and Diet-members cutback) l  Consideration on tax-exemption combined with subsidy as measures for low-income brochures l  Revenue from consumption tax to be limited to social security
JRP	l  Consumption tax-hike to 10% to be suspended l  Opposition to deletion of the “economy provision” that leaves room for extension of the tax-hike l  Consumption tax to be shifted to local tax. Setting of the rate to be delegated to the local governments as primary tax revenue l  Tax-exemption combined with subsidy to be realized on assumption of the “my number” system (because of the low cost-benefit performance of reduced tax rate and all-out subsidy)
Future	l  Consumption tax-hike to 10% to be extended l  Securing fairness of the consumption tax by invoice system l  Following conditions to be met as premise for tax-hike ①       More transparency of finance through financial and accounting reforms ②       Social security reform such as rationalization ③       Economic and social reform to realize sustainable economic growth l  Consumption tax to be shifted to local tax
Communist	Consumption tax-hike to 10% to be suspended, ways not to depend on the consumption tax to be groped

2.         Financial Reconstruction

LDP	l  Simultaneous realization of economic growth and financial reconstruction l  Primary balance to be shifted to surplus by 2020, and financial deficit to GDP will be accordingly decreased steadily l  Specific plans to be decided by the next summer l  Administrative and financial reform will be continued
Komeito	l  Primary balance to be shifted to surplus by 2020 l  “mid-term plan” will be drafted for realization of the goal
DPJ	l  Act on promotion of the financial healthiness to be submitted, primary balance to be shifted to surplus by 2020 l  Promotion of “appropriation reform”, “growth strategy” and “revenue reform” l  Relooking on the distributive public works, and steadily implementing the infrastructure works for reconstruction or which are truly needed
JRP	l  Act on Financial Responsibility to be submitted l  Schedule toward the “primary balance zero” premised on “appropriation reform”, “growth strategy” and “revenue reform” to be drafted l  Revenue to be created through “self-cutting reforms” and “administrative reforms” 30% cut on the Diet expenses, Diet seats, cost cuts on the central government personnel fees, downsizing of the independent administrative agencies and public-private funds, disposition of government assets, integration of tax-collection agencies into Revenue Agency, etc.
Future	l  Act on Financial Responsibility toward realization of public accounting reforms l  Mid- and long-term financial plans to be drafted toward strategic financial management l  Large cutback on the transferred appropriateness which are causing wastes and distributive budgets and relooking on the tax
Communist	l  Tax reform penetrating the principle of capability by revising the tax-exemption to the wealthy brochures and major companies l  Appropriation on public works projects or military expenses to be reduced l  Tax-increase to be sought through economic reforms that increases the national income by utilizing the financial reserves of the major companies

(charts drafted by PPPC)

Unreasonable Abuse by Critique

(TAKAHASHI Yoichi, PPPC Chairman)

With regard to my article in Gendai Business on November 24 (http://gendai.ismedia.jp/articles/-/41199), Mr. Nobuo Ikeda slandered me by saying that the graphs are groundless (http://ikedanobuo.livedoor.biz/archives/51920669.html).

While the comments are already deleted at the present, so far there is no apology to me. What an impoliteness.

Let’s confirm the numbers which are simply calculated from the official statistics provided by the Cabinet Office (http://www.esri.cao.go.jp/jp/sna/data/data_list/sokuhou/files/2014/qe143/gdemenuja.html) by using the Excel.

The real GDP rate compared to the previous quarter in the 2013 July-September to October-December, 2014 January-March which witnessed the dashing-on demands, April-June which saw its reactionary effect and income decrease are, respectively, +2.4%, -1.6%, +6.7%, -7.3% and -1.6% (chart)

Real GDP Growth Rate (comparison to the previous quarter)

(graph drafted by PPPC)

While the mass media looks at these figures alone, in order to understand the trend correctly, the attention should be paid to their ratio from the same quarter in the previous year. The corresponding numbers would be respectively +2.5%, +2.3%, +2.9%, -0.2% and -1.2%.

 

Real GDP Growth Rate (comparison to the same quarter in the previous year)

　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　(graph drafted by PPPC)

A simple glance at the graph reminds us of the fact that while the economy had continued to grow by more or less 2% before this April, the economy turned to negative growth since this April when the consumption tax rate was hiked to 8%.

Perhaps the growth rate alone doesn’t provide enough evidence, so it would be helpful to refer to the real amount of GDP (adjusted, calculated onto annual base) to understand the economic trend. It also enables to calculate the hypothetical economic growth based on an assumption that there was no tax-hike and that the economy continued the 2% of growth.

Effect of Consumption Tax-Hike

(trial calculation by the author, graph drafted by PPPC)

It suggests that we lost 15 trillion yen of GDP due to the tax-hike. Probably the tax revenue lost by the central and local governments would amount to some 3 trillion yen in total. It means a worst scenario that the tax was raised, the economy deteriorated and the revenue was lost.

I had made the right economic prediction, so it is just ridiculous that critiques in favor of a tax-hike, such as Mr. Ikeda, slander me while setting aside the fact that they failed to foresee the negative economic effects of the tax-hike and the current economic recession.

In What Case a Tax-Hike is Acceptable?

(TAKAHASHI Yoichi, PPPC Chairman)

My prediction in the previous column (Experts’ Meeting on Tax-Hike and Possibility of Snap Election) seems to have been right. At the moment, many media rumor a schedule of Lower House dissolution on November 19 (taian) – election on December 14 (tomobiki).

It is needless to say that Prime Minister has the exclusive authority over Lower House dissolution, so we have to wait for Prime Minister Abe to come back from his trip abroad. But Nagata-cho has already been busy preparing for a next election and it seems to be difficult to hit brakes to the momentum.

In any case, GDP in the July-September quarter, whose first flash will be released on November 17, will greatly attract the public attentions. Assuming that the consumption tax rate is to be really hiked to 10 percent, how much GDP should be attainable?

Let’s try some calculation. The real GDP (annual base) in the January-March and April-June quarters in 2014 was respectively 535.0 trillion yen and 525.3 trillion yen. There was a dashing-on demand in the January-March quarter before the tax-hike and the April-June quarter saw a decreased demand as its reactionary effect.

If there wasn’t the tax-hike to 8% in this April, there should have been around 2% of growth in both the Jan-Mar and Apr-Jun quarters compared to the previous year. To note, both the July-September and October-December quarters in 2013 had actually witnessed 2.4% of positive growth. If that was the case, the real GDP in the Jan-Mar and Apr-Jun quarters should have been, respectively, 531.5 trillion yen and 536 trillion yen. It means that the dashing-on demand before the tax-hike amounted to 535 trillion (the actual rate) - 531.5 trillion (supposed rate) = 3.5 trillion yen. The same amount would have been decreased in the Apr-Jun quarter as its reactionary effect. Yet, more than that, the whole GDP rate has been decreased by 7.3 trillion yen, which should be considered as the negative economic effect of the consumption tax hike in April.

Dashing-on Demand and its Reactionary Effect, Income Decrease by the Tax-Hike

(Chart: drafted by PPPC)

This negative effect of the tax-hike should be continuing to the same extent in the Jul-Sep quarter. The GDP should have been 538.4 trillion yen if not for the tax-hike, but it will possibly be around 531.1 trillion yen smaller than that by 7.3 trillion yen for the negative effect of the tax-hike. Although the rate is still smaller than the rate which should have been gained, those in favor of the tax-hike will likely OK the number which is +4.5% from the previous quarter. To repeat, those in favor of the tax-hike will admit another tax-hike to 10% if the GDP in the Jul-Sep quarter is to be announced as around +4.5%.

Of course, such a rate is not at all permissible to the author having voiced avoiding the tax-hike. The author cannot agree with the tax-hike unless the GDP in the Jul-Sep quarter amounts to 538.4 trillion yen which should have been gained if not for the tax-hike plus +2% from the same quarter in the previous year. It is equivalent with +10% from the previous quarter.

Goal of “TFR 1.8%”

(HARA Eiji, PPPC President)

The government’s Council on Overcoming Population Decline and Vitalizing Local Economy in Japan, composed of 12 members, in eye of releasing its “long-term vision” and “comprehensive strategy” in December, announced their respective outlines on November 6.

One of the most important issues regarding the local revitalization is the population. One starting viewpoint of the government is that quite a few local governments will disappear someday by the declining population and population flow-out to urban areas as long as the population continues to decline at the current speed.

With regard to this point, the outline of the “long-term vision” released this time showed the following “future directions” to be sought.

1.         To hit brakes to the population-decline to secure “100 million 50 years later.” To that end, improvements to “TFR (Total Fertility Rate) 1.8%” will be sought (which more than half of the OECD countries have accomplished).

2.         To correct the over-concentration in Tokyo.

The reason behind the second point <correct the over-concentration in Tokyo> is the government’s perspective that the “over-concentration in Tokyo is causing the decline of TFR.”

However, although it is true that TFR in urban areas exceed that in rural areas currently, there is no inevitability that “TFR are low in urban areas” from international comparisons. Rather, the issue of declining population should be controllable if proper countermeasures to the population problem are to be taken in urban areas, hence the issue of over-concentration in Tokyo and its appropriateness should be a different point of discussions.

The issue of “over-concentration in Tokyo” will be discussed some other time, and this time, let’s discuss the issue of TFR.

Many developed countries have accomplished more than 1.8% of TFR (France 2.01, U.K. 2.00, Sweden 1.98, U.S. 1.93 in 2010) and compared to the fact the number have improved largely in the recent 10-20 years in France, U.K., and Sweden, it is true that Japan’s 1.4 has a lot to be dealt with.

(See, for example, Cabinet Office http://www.kantei.go.jp/jp/singi/sousei/souseikaigi/dai1/sankou.pdf p.19)

Yet, the problem is how to achieve that goal.

Looking at the present data;

①       There are no major changes in the number of children which a couple desires to have and actually has in the recent 30-40 years.

(Number of average number of children which couples desire to have and actually schedule to have
Source: White Paper on Declining Number of Children 2014)

①       On the other hand, the rate of unmarried persons in their thirtieth increased largely from around 7% to 30% in the recent 30 years. This is the major factor accelerating the decreasing number of children.

(Rate of unmarried female in ages
Source: White Paper on Declining Number of Children 2014)

Based on these facts, countermeasures to the issue of shrinking number of children should be considered in course of solving the following two points.

i.              Many couples give up having as many children as they had originally desired for economic reasons

(Reasons for not having the number of children they had desired to; according to wife’s ages
Source: White Paper on Declining Number of Children 2014)

i.              People (esp. male) who cannot step into marriage for stability reasons are becoming the main cause of declining children

(Reasons for not having the number of children they had desired to; according to wife’s ages
Source: White Paper on Declining Number of Children 2014)

Specifically, measures covering such points as the following must be considered;

l  Lowering the child-rearing costs through expansion of allowances/supports and tax measures

l  Improvement of the child-rearing environment, e.g., eliminating the nursery waiting list (equal-footing of private companies and social welfare corporations, relooking of the standard of childcare workers, etc.)

l  Labor reform (improvement of the youth’s working environment by realizing the principle of same work, same wages, building of the working environment in which one can get back to the work after leaving the office for having birth of children, etc.)

Especially, the efforts should not include just the budget measures but the ones that challenge the so-called “bedrock regulations” in the fields of nursery or labor. It will be the test whether the “TFR 1.8%” will be no more than a flowery slogan or the serious goal to be accomplished.

Experts’ Meeting on Tax-Hike and Possibility of Snap Election

(TAKAHASHI Yoichi, PPPC Chairman)

The Cabinet Office on October 29 announced to hold meeting with experts to discuss validity of the next consumption tax hike to 10% scheduled in October 2015 from November 4 at the Cabinet Office. The experts are 42 figures, around half of which were reshuffled from the last year’s members. Still, it is predicted that many, more or less 70%, will likely voice in favor of the tax-hike.

The meeting are scheduled on November 4, 13, 14, 17, 18. What requires attentions is the release of GDP update in July-Sep period scheduled on November 17. Taking the schedule into consideration, discussions will likely flow into such a bureaucratic-prone scenario that the experts first voice necessity of the tax-hike, then negative effects of the past tax-hike will be confirmed by the latest GDP update, then someone will insist urgency of economic measures to mitigate the negative economic impacts.

In the meantime, in the political arena, there is a possibility of Lower House dissolution and a snap election on the issue of whether to suspend the scheduled tax-hike alone. It is possible that the Cabinet compiles outline of the next fiscal year’s budget by suspending the tax-hike and calls a sudden election; lesson from the experience of the Aso administration which was pressured into the Lower House dissolution and consequently lost the power.

More specifically, the schedules are rumored to be Lower House dissolution on November 19 (taian: lucky day on the Japanese calendar) -> election on December 14, one that resembles two years ago when LDP came back to power (Lower House dissolution on November 16 -> election on December 16). After hearing opinions of the experts until November 18, Abe calls on an election by stating he wants to hear opinions of the national public.

The Sundays in December and their auspiciousness are 7 (sensho: a day on which bold actions are supposed to turn out well), 14 (tomobiki: a day on which one's bad luck is thought to affect one's friends), 21 (senbu: a day on which it is supposed to be better to avoid disputes and hurried actions) and 28 (taian). December 28 is the lucky day but it is difficult to do elections in the year-end. Because Dec 21 is the senbu, December 14 will be the right day to call an election, and by calculating back the date November 19 will be the day to dissolve the Lower House; right after the meetings with the experts are finished.

Another alternative is to call a snap election in mid- or end-January by shortly extending the current Diet session scheduled to end on November 30.

The recent Cabinet reshuffle was a temporary one until the next full-scale lineup in the next year, however, the scenario has been upset by resignation of the two female Cabinet members. Still, thanks to the damage-control efforts, the Cabinet and ruling party approval rate has been on the uptick, respectively 50% and 40%. So now the possibility of a snap election has been rumored.

On the Revised Temp Labor Act

(HARA Eiji, PPPC President)

The Revised Temp Labor Act is becoming one of the controversial issues in the current Diet session. The opposition Democratic Party of Japan and some media have taken critical attitudes to the draft bill that this is an excessive “deregulation” in accordance with requests of the business side which desires to make use of temp workers more easily.

However, the content of the revised bill is, in short, a specification of the rules; one that attempts to transfer the existing, complicated and ambiguous rules into more clarified ones. As a matter of fact, it entails not only the “deregulating” contents but also “reregulating” aspects.

The existing Act has divided the occupations into “26 expert types” (digital-device operating, secretary, interpreter, etc.) and the “others”, to which having applied different rules.

l  There is no limit of receiving temp workers in the 26 expert types

l  There have been one-year limit (exceptionally three-years limit) in the others

Yet, there have been various questions to the existing distinction that how much can be fitted into the 26 occupations or whether the law applies when someone engaged into undescribed jobs, etc.; all rooting from the fact that the rules have been too unspecified and complicated. From the beginning, there has been an outdated aspect that operation of digital device has been considered as an expert duty.

In the revised bill this time, by abolishing the existing distinction of “26 expert jobs” and the “others” and it attempts to set

l  Individual: maximum three years if the same worker kept working in the same office

l  Office: maximum three years of accepting temp worker in the same office, yet, extendable after hearing opinions of majority in the office

Seemingly it can be regarded as a “reasonable improvement” of existing inadequacy in the current legislation. In the deregulation-reregulation spectrum,

l  Reception of temp workers in the “other jobs” will be extendable with certain conditions,

l  It entails a “reregulation” aspect in the reception of “26 expert jobs” by imposing new time limit

In the current extraordinary Diet session, while the opposition lawmakers have sought to raise the issue by repeating questions whether the temp workers will increase by this revision of the Act (Lower House Budget Committee on October 3), such arguments might not be constructive given the content of the bill mentioned above.

Rather, the point of discussion should be what to do with the issue of irregular employment as the next step to the “temporary improvement” this time.

It is absolutely doubtless that irregular employees are in severely unstable situations compared to the so-called regular workers and something must be done. The problem is how solutions are to be presented.

The first scenario is to deny irregular employments and to attempt to make all workers regular. Many of the legislations proposed and implemented in the DPJ administration basically originated from such perspectives.

However, there are points to be raised in this scenario.

l  First, not-all irregular workers necessarily desire to be regular employees, and there are certain numbers of irregular workers who has chosen to be irregular employees by themselves (according to debate on October 3, the ratio is 50% in the government’ view and 40% in DPJ’s calculation).

l  Making all irregular workers regular sounds like an effort to improve the employment situation, however, it may in turn deprive opportunities of many others in reality (in extreme cases, e.g., overall banning of irregular employment might create complete unemployment of many others because all the irregular workers cannot be regular at once).

Then the more realistic approach is the second scenario that dispels gap between the regular and irregular, i.e., penetrating the principle of “same job, same wage,” while admitting variety of labor.

While in Europe and others, the principle of “same job, same wage” is manifested in the general legislation, it is naturally perceived that there are gaps between irregular and regular in Japan. Efforts to solve the situation should be now discussed.

To add, the gap between irregular and regular does not only exist in the private sector, but also in the central government offices including the Ministry of Health, Labor and Welfare which has jurisdiction over the employment policy.

There is an advertisement for open recruitment of irregular employees in the website of MHLW that says \7,000-10,000/day for assistant or secretary duties. Needless to say, this is apart from the working conditions of the general government employees protected by job security and the National Personnel Authority (http://www.mhlw.go.jp/general/saiyo/hijoukin.html).

What to do with the irregular employment? Hot to attain the principle of “same job, same wage”? Solutions must be proposed, first by the central government ministries.

It is hopeful that discussions in eye of the drastic reform on this issue will be made in the Diet.

In the meantime, there are further challenges;

l  Basically, it should seek attainment of “same job, same wage” principle and the regulations binding various ways of working should be eradicated

l  Rather than “making all irregular regular,” it should seek “valuing various ways of working” + “prohibition of different treatments on irregular workers”

l  “Valuing various ways of working” is also important from the view of increasing fluidity of the labor market. It is incorrect to assume that “all irregular desires to be regular”

l  The issue of “prohibition of temp day laborer” left untouched.

Number of Temp Workers = 1.3 million (data released in March 2014)

What is it that Promotes Economic Growth?

(TAKAHASHI Yoichi, PPPC Chairman)

What is it going to be like in 2050 if the economy shifts at the current speed? Currently Japan’s GDP per capita is more or less $40,000, raking 20^th in the world. By definition, the “advanced country” refers to those whose GDP per capita is more than $10,000 so Japan indeed is an advanced country. However, the average growth rate of Japan in the recent 20 years is 0.8%, which almost the lowest in the whole world. If the current trend continues, Japan’s GDP per capita in 2050 will be around $50,000.

As the U.S’s average growth rate is 3.6%, its GDP per capita will be $190,000 in 2050 from the current $50,000. In Euro, where the growth rate is 3.8%, its GPD per capita will be $150,000 from the current $40,000.

The world’s average growth rate is about 4.3%. It means a $10,000 will be equivalent with $50,000 in 2050. At that time, Japan will no longer be an advanced country. Though not the least developed, it will be a middle-income country or so.

Transition of GDP per Capita (US$)

(World Bank: speculation of 2050 from transition in the last 20 years)

Then how do we realize an economic growth? This is the most difficult question which if one knows its answer there will be no need of economics. Paul Krugman once said if one can figure this out then the world’s poverty can be solved all at once so deserving Nobel Prize. There is no simple answer to this difficult question, but the author has started to have a partial clue.

The following are correlation of GDP per capita and various other economic indexes. If the correlation coefficient is low, maybe there is no interrelation. If there are, then the cause and effect should be investigated.

As result of these efforts, what attracted my attention was the influence of money, which showed coefficient of 0.5; a little less than enough to conclude there is correlation but outstanding compared to the others.

Looking at the data of individual countries, the expansion rate of money has influence on the growth rate with a time rag of one-two years, though its cause and effect are yet known. Maybe it is an effect of economic growth in the past, but we can increase or decrease supply of money through monetary policy. And it seems quite natural that such an artificial factor could be a cause of economic growth rate.

Of course this is not to say that the money-supply alone can explain economic growth, but so far other possible elements are yet to be found. Please see the correlation studies below.

Money-Supply (horizon) and GDP per Capita (vertical) (1994-2013)

Population Increases (horizon) and GDP per Capita (vertical) (1994-2013)

Tax Revenue Ratio to GDP (horizon) and GDP per Capita (vertical) (1994-2013)

Public Education Expense Ratio to GDP (horizon) and GDP per Capita (1994-2013)

Research and Development Expense Ratio to GDP (horizon) and GDP per Capita (1994-2013)

Higher Education Rate (horizon) and GDP per Capita (1994-2013)

(Source: from World Bank, all the charts drafted by PPPC)