Change Course in Taxation

After internal struggle over the collection of consumption tax, Shinzo Abe administration decided not to introduce refunding system for low-income families initiated by Ministry of Finance. Instead, Abe is considering multiple tax rates for daily goods including food. The main reason was to tame the coalition partner, Komeito, which would be indispensable for victory in the election of House of Councillors next summer. It was a political maneuver after all.

Chief Cabinet Secretary, Yoshihide Suga, announced that Abe administration would dismiss an option of refunding without detailed reasoning. “It is very natural to introduce multiple tax rates when the rate will be raised. There will not be so many rates, and the option is not the proposal from MOF at least,” told Suga in his press conference on Monday. The refunding option was officially dropped.

MOF once led the discussion over new system for consumption tax. They concluded that refunding system, taking advantage of new social security number system for tax collection, would be the best, and persuaded the Chairman of Taxation Research Board in Liberal Democratic Party, Takeshi Noda. LDP temporarily moved for accepting MOF proposal.

It was Komeito that blocked the maneuver by MOF and LDP. Komeito raised a campaign promise last year that it would introduce multiple tax rates in the time rate would be raised to 10%, taking care of low-income families that consisted significant part of their supporters. There has been a firm opposition among their main body of supporters, Soka Gakkai. One of the leaders of Komeito praised announcement of Suga, which included “multiple tax rates” and “when the rate will be raised.”

Caught between LDP and Komeito, Abe took the side of Komeito. To pave the way for changing the course, Abe replaced Noda with former Minister of Economy, Trade and Industry, Yoichi Miyazawa. It was Abe’s message to LDP lawmakers that he was not satisfied with the process in the party.

Abe had a good reason to support Komeito. In next election of House of Councillors, he will target taking two-third majority for initiative of constitutional amendment. Maintaining firm support from Komeito should be crucial for his agenda. Receiving pressure from Soka Gakkai, Suga led the scenario of introducing multiple tax rates using political influence of personnel management to LDP.

This event revealed the fact that Abe administration could be deeply affected by small coalition partner that was actually controlled by a religious organization. Behind the scene, fundamental discussion over Abe’s economic policy making larger gap between the rich and poor has not been accomplished.