INSIGHT: Noda's drive to raise taxes leave DPJ policies in the dust

June 12, 2012


Long criticized as indecisive, Prime Minister Yoshihiko Noda now appears so determined to pass tax hike legislation that he is willing to discard his party’s flagship policies and risk breaking up the ruling party.

He issued what could be considered an ultimatum to Ichiro Ozawa, former president of the ruling Democratic Party of Japan and staunch opponent of the tax hike, and is bending to opposition party demands. He even suggested he would dissolve the Lower House and call a snap election over the tax issue.

"Noda is dead serious," one of his aides said. "Nobody can stop him now.”

The prime minister promised to hold a vote in the Lower House on the tax bills before the current Diet session ends on June 21, saying measures to tame Japan’s enormous debt problem—and his political life--depend on it. The legislation would raise the consumption tax rate from the current 5 percent to 8 percent in April 2014 and to 10 percent in October 2015.

However, with the Upper House controlled by the opposition parties, Noda needs cooperation from the “enemy,” who are not necessarily against the tax hike but want to use the issue for their own gains.

Members of the DPJ, the main opposition Liberal Democratic Party and New Komeito, a smaller opposition party, met intermittently on June 10-11 to discuss the consumption tax rate and social security reform.

The DPJ and the LDP agreed on raising the tax rate in two steps.

Ozawa has argued that increasing the tax rate would break a pledge in the party’s manifesto for the 2009 Lower House election to eliminate wasteful spending before discussing a tax hike.

Another key policy in that manifesto, which helped to propel the DPJ to victory over the LDP and take control of government, also appears disposable for Noda.

On Feb. 17, the Noda Cabinet, in line with its campaign pledge, decided on its policy of integrated reform of the tax and social security systems.

The government planned to submit a bill to the current Diet session to abolish the health-care system for "latter-stage elderly" (those aged 75 or over). It also sought to submit legislation to the Diet next year to create a minimum pension system.

Those faced immediate problems.

The National Governors' Association raised concern that abolishing the health-care system for the elderly would increase the financial burden on local governments.

And given Japan’s financial constraints, the feasibility of a minimum pension system was also called into question.

The Noda administration decided to relegate both proposals to future discussions at a cross-partisan "national conference," sources said.

But in the latest talks, the LDP and New Komeito demanded that the DPJ revise the entire policy.

On June 11, Noda indicated he was prepared to do just that.

"We will have to watch the development of talks and think about our response," he told a Lower House special committee on the tax hike issue.

Deputy Prime Minister Katsuya Okada supported Noda's stance.

"The results of the talks will take precedence (over the policy plank)," Okada told the committee.

Noda’s concession on social security will eliminate a major obstacle in talks on revising the tax hike legislation. Some LDP members have already expressed their appreciation of Noda's readiness to revise the social security policy, improving the chances for a basic agreement on the tax bills.

Noda is arranging a "summit" with LDP President Sadakazu Tanigaki on June 15 for a final agreement.

The prime minister has pledged both in Japan and internationally to pass the tax hike legislation during the current Diet session.

He tried to persuade Ozawa to support the tax hike bills--but to no avail. That opened the opportunity for Noda to work directly with the opposition parties to arrange passage of the legislation before June 21.

If the DPJ-LDP talks run into snags, dashing Noda’s hopes of keeping his promise, it could cost him his post of prime minister.

But opposition is also growing within the LDP on raising taxes before social security reform in fears of a backlash from the public. A recent Asahi Shimbun survey showed that only 17 percent of voters want the Diet to pass the tax hike legislation during the current session.

And Ozawa, a veteran of numerous political battles who leads the largest faction within the DPJ, could still throw obstacles in Noda’s way.

Still, Noda sent a warning to Ozawa during the Lower House special committee session on June 11.

"When a vote is carried out on the bills, there will naturally be an obligation (for DPJ members) to obey the party decision," the prime minister said.

Noda also indicated that if the tax hike legislation hits an impasse, he might dissolve the Diet and call a snap election, a move that Tanigaki has demanded.

"The time is drawing near when I will have to make a decision for the sake of the people," Noda told the Lower House special committee. "And I am staking my political life (on the tax hike legislation)."

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Prime Minister Yoshihiko Noda speaks at the Lower House special committee session on June 11. (Satoru Semba)

Prime Minister Yoshihiko Noda speaks at the Lower House special committee session on June 11. (Satoru Semba)

  • Prime Minister Yoshihiko Noda speaks at the Lower House special committee session on June 11. (Satoru Semba)

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