Tax Is Always Political

When political leaders change the tax system, the first thing they think is benefit for themselves, not for citizens. As same as the discussion in the United States, Japan’s tax reform for next fiscal year is tax cut first, fiscal reconstruction second. The tax reform is mainly targeted on supporters for LDP. Is this administration returning back to “the lost decades?”

The leading parties, LDP and New Komeito, agreed with each other on the tax reform guideline for FY 2013. Following the tendency of the LDP administration, the guideline will be fully reflected on governmental budget. It focused on economic growth and care for families which would be affected by consumption tax increase next year. Overall concept reflected on the conclusion was soft for industry and hard for low-income families. This is the attitude that LDP administration had done for years.

The short-term prime goal for Abe administration is growth. To encourage capital investment, the government applies new deduction from corporation tax. There will be new tax reduction on the cost for research and development.

On the other hand, the tax relief for families as the compensation for raising consumption tax rate will mainly be for purchaser of houses and cars. LDP denied the request of Komeito, supported by low-income families, for introducing exceptional rate for daily necessaries, such as foods or books. The tax rate will be raised from 5% to 8% on April 2014, and 8% to 10% on October 2015. Although LDP accepted the exceptional rate on the second hike, it is unlikely that the rate for foods would not be reduced to 5% after 8% introduced.

Another focus of the discussion was about the vehicle weight tax. LDP succeeded in redefining the tax to be only used for road construction. This special purpose tax was repealed in DPJ administration, because it would encourage construction of unnecessary roads. Needless to say, road construction industries are basic supporters for LDP. With criticism against reappearance of “bad old LDP,” the guideline avoided an expression of special purpose tax, but it described about the tax income to be “ranked as a resource for maintenance and renewal of roads.”

The government has a target of newly delivered national bond of FY 2013 to be within the amount of tax income. But it already decided a large amount of new national bond in the sufficient budget for FY 2012, which made the total amount of the debt for FY 2012 ¥55 trillion, ¥11 trillion more than the limitation set by DPJ administration. The fiscal balance of Japan, which is one of the worst in the developed countries, should be worth under Abenomics.