DPJ Puts Out for Small Business

The 2007 Upper House election manifesto has finally disappeared from the DPJ website but has yet to be replaced by the new package that is estimated to cost 20.5 trillion yen when it goes into full force in FY2012. Instead, there are the Five Promises, which I translate in full for you (the Promises, not the entire flash display):

It is your life that will change.
Five Promises that will create a new life:
1. Wasteful spending: We will eliminate the “Decent from Heaven” and take tax revenues back into the people’s hands.
Thorough rearrangement of the total 212 trillion-yen national budget.
We will produce the fiscal funds to reconstruct the people’s lives.

2. Pensions and medical care: We will eliminate anxieties over pensions, medical care and nursing care, and stabilize your lives.
“Pension Passbooks”, and pensions that do not disappear.
We will abolish the Late-term Elderly Medical Care System.

3. Raising children: We will eliminate worries over raising children, and create educational opportunities for everyone.
We will distribute a 26,000 yen/month per child “Children’s Allowance”.

4. Working: We will eliminate inequality in employment so that people who put in honest work will be rewarded.
Non-permanent workers also to be treated equally.
We will ban temporary assignment labor of two months or less.

5. Agriculture, Forestry and Fishery: We will eliminate worries over the livelihood of people in the agriculture, forestry and fishery industries, and regenerate food and local communities.

This is the best economic policy.
The Democratic party of Japan

The DPJ appears to have concluded that the 20.5 trillion yen package is not a good sell. The items, if not the price tag, lives on though, in its November 5 economic package (which also incorporates the October 15 financial crisis measures, a detailed, wonkish package that unfortunately received scant attention in the media). I’d like to highlight a couple of little-noticed items in the new package, since they are significant enough to deserve mention as a Sixth Promise, to small business owners and their families:

We will cut corporate income tax rates for small and medium enterprises in half for the time being.
…
…We will raise the target sum under the Government and Other Public Procurement Act for procurement contracts with small and medium enterprises by ten percentage points.

The corporate income tax rate is 30% of taxable income. Corporations capitalized at 100 million yen or less get a tax break on taxable income up to 8 million yen, which is subject to a 22% tax rate; any amount above that is taxed at the normal 30% rate. I don’t think giving tax breaks to businesses making money during a recession makes sense a s small business policy, and it’s bad employment policy to give incentives to cut expenditures during a recession (although cutting taxes in general would make sense form a macroeconomic point of view). Raising the public procurement target is even more troubling. The government procurement target has been raised to the best of my knowledge every single year since its incipience in 1966, to 50% for FY2008; a ten-percent hike has the potential to create huge distortions in the procurement process, leading to more waste. So there you are; the ultimate DPJ giveaway to small business.

Is this yet another case of the DPJ out-LDPing the LDP? Yes. Is Ichiro Ozawa the symbol of the DPJ’s LDPness? Yes. Have they been counted when tallying the 20.5 trillion price tag? Who knows. Is this the change the Japanese public wants? No. Is this the change the Japanese public will take regardless? Maybe; the Japanese public is mindful of the alternative.