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political leaders persuaded the public but because
politicians reacted to the public’s own realisation of
the nation’s worsening fiscal predicament. Even if
bickering within the ruling camp somewhat slows the
pace of fiscal restructuring, the divided Diet will,
ironically, ensure that reforms are not derailed
entirely (this is one of the merits of the gradualistic,
consensus-based decision making in a bicameral
system).
Fiscal reform has wide support
Issues such as pension reform and fiscal reform are
national problems, so a supra-partisan approach is
certainly the best way to go. Indeed, the recent fiscal
restructuring programmes of Germany and the UK
were decided by coalition governments. It might
therefore be fortunate that the Kan government’s
recently unveiled fiscal management strategy only
deals with the big picture (objectives, targeted
timeframes). The lack of specifics should make it
easier for parties to collaborate, as they are starting
with a blank slate that can be filled in together –
rather than a detailed programme that must be
haggled over. Each party naturally has its own vision
for Japan and the optimal tax system, but the
country’s dire fiscal situation should make nonpartisan
cooperation on reform possible.
But hurdles exist
That said, there are high hurdles that must be
overcome in order to achieve cooperation with the
opposition. The LDP has indicated that it is prepared
to engage in multiparty talks on the tax reform issue,
on the condition that the DPJ scrap spending
programmes that it promised in its manifesto for last
year’s Lower House election (e.g. child-rearing
allowances). Many reform-minded DPJ lawmakers,
including cabinet ministers, would probably be
amenable to amending the campaign promises in
order to advance discussions on tax reform. However,
the camp (led by Ichiro Ozawa) that is lukewarm on
tax reform is adamant that promises must be kept. If
the reformists move to get their way by force,
acceding to the demands to forgo campaign
promises, there is a chance that the internal divisions
in the DPJ could split the party in two.
Link-ups with like-minded smaller parties?
As for other opposition parties, the policy ideas of
small parties such as New Komeito and Your Party
are similar to those of the DPJ; incorporation into the
ruling coalition is thus not inconceivable. New
Komeito is the most like-minded in that it recognises
the necessity of tax reform (including an increased
consumption tax) in order to prop up the tottering
social welfare systems.
However, an outright link-up with the DPJ looks
unlikely, as New Komeito fought fiercely against the
party in the Upper House election campaign,
slamming the DPJ for its money scandals (Hatoyama,
Ozawa) and ineffective leadership, and arguing that
the DPJ-led coalition should be kicked out of office.
New Komeito, moreover, is still closely linked with
the LDP (they cooperated in the recent election by
not fielding candidates against each other).
Meanwhile, Your Party, a newcomer on the scene
(created in 2009 by LDP defectors) which emerged
as the biggest winner in the Upper House election (it
gained 10 seats), advocates fiscal restructuring via
spending cuts and accelerated growth; it is opposed
to raising taxes. The DPJ would therefore find it
difficult to secure cooperation on tax reform from this
party, although the two might be able to cooperate on
other issues.
Behind-the-scenes horse-trading until after DPJ’s
leadership election
At this juncture, it is hard to gauge what kind of
framework the government will adopt in running the
Diet and formulating policies, including tax reforms.
The DPJ has indicated that it intends to engage in
policy-based cooperation with other parties, but
stronger links with a specific party will be needed for
stable governance. On the surface, not much is likely
to happen until after the DPJ’s leadership election in
September (when Kan’s fate as leader will be
decided), but behind the scenes the Kan government
is likely to horse-trade with other parties to win closer
cooperation, or an alliance.
Ryutaro Kono 16 July 2010
Market Mover
17
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