Gasoline Taxes Potpourri

For the first quarter of 2008, the average state gasoline tax is 28.6 cents per gallon, plus 18.4 cents per gallon federal tax making the total 47 cents per gallon. For diesel, the average state tax is 29.2 cents per gallon plus an additional 24.4 cents per gallon federal tax making the total 53.6 cents per gallon.
—from Motor Fuel Taxes, American Petroleum Institute

Let's do the conversion math. For gasoline, that’s a 4.86 cent/liter federal tax and a 7.56 cent/liter state tax for 12.42 cents in federal and state taxes per liter. For diesel oil, the respective figures are 6.45 cents, 7.71 cents, and 14.16 cents.

The so-called gasoline tax in Japan consists of a 5.2 yen/liter local road tax and 48.6 yen/liter volatile oil tax, for a total of 53.8 yen/liter. The “temporary” surcharge accounts for 24.3, 0.8, and 23.8 yen/liter, respectively. The light oil (i.e. diesel fuel) tax 32.1 yen/liter, of which 17.1 yen is the “temporary” surcharge.

There’s more:

You know, I think Americans would be shocked to learn that only about 60 percent of the gas tax money that they pay today actually goes into highway and bridge construction. Much of it goes in many, many other areas.
—2007 August 17; Mary Peters, U.S. Secretary of Transportation

By contrast, most of the Japanese gasoline tax money goes into the construction and maintenance of roads, including some very expensive bridges. Yes, the U.S. highway system may be going to pot. Yes, compensating Japanese landowners is expensive, and so is building against earthquakes. Still, I see a good prima facie case that Japanese roads can do without a lot of that money without risking pothole epidemics and collapsing bridges. In fact, as an American journalist said to me the other day, a few potholes here and there would have the salutary effects of showing that we weren’t overspending.

---

Last month, 42 of the 47 prefectural governors in Japan told Yomiuri that they wanted to maintain the surcharge, and none of the other five opposed it outright. With regard to putting the money into the general funds, only four governors supported it. On the other hand, only 11 opposed it outright. Most of them must be waiting to see how much of the money would continue to be shoveled back into their coffers and local economies before they break either way. The Tokyo governor is a strong supporter of the status quo; wealthy Tokyo has no problems in meeting the local copayment requirements for national road project and still have more than enough money to finance the rest of its own projects—roads or otherwise. Better then, to have the money spent on Tokyo roads rather than run the risk of the national government taking a bigger cut or shunting the money to the poorer prefectures. Those poorer prefectures on the other hand would benefit from string-free cash handouts as long as they didn’t lose money in the bargain.

These governors aren’t that far off from their constituents as the two-, three-to-one public opinion polls running against the maintenance of the status quo would seem to indicate. This Asahi poll shows that the 67% who supported putting the revenue into the general funds were split 44%-44% on the reinstatement of the surcharge in the event of the handover to the general funds. That’s 29% of the sample group, much higher than the 22% who support the reinstatement of the surcharge outright. Now there may be some overlap between the two numbers (I have no way of knowing unless I see the full survey results), but the results do suggest that the Japanese public by and large would support the retention of the surcharge if the government coupled it with a major overhaul of the road development program and its implementation process and a revision of the program’s place in the list of national priorities. Can the Fukuda administration and the ruling coalition do it this fall? I am increasingly skeptical.

---

If the Fukuda administration wants to put the road money in the general funds come fiscal year 2009, why doesn’t it just drop the 10-year extension of the pending special bill and use the money in the FY2008 road budget, which has already been passed?

Because the special bill is needed to extend special rates for subsidies that the national government doles out to local governments. Without it, the subsidy rates would revert to the lower “normal” rates, throwing local budgets out of whack.

McCain Promises Them the Moon Because It Won’t Happen Anyway Strategy

Ross Douthat slams John McCain for his slew of mutually irreconcilable pledges. Mr. McCain, if he’s honest, will be thanking the gods for the “twisted” Congress, which won’t allow him to do the things he’s promised to do.

Which, of course, reminds me of the DPJ promises. My money says it can’t square their circle. I’ll be more than happy to be proven wrong, since the coalition doesn’t look like a good bet either. And it’s too late to emigrate.

BTW it’s funny how “twisted” works differently; here and there, parliamentary and presidential. This calls for a taxonomy.

Gasoline Prices: Here and There

Here, I took up Paul Krugman’s argument against the temporary relief that Senators Evil and Pointless—his words, not mine, sort of—are pretending to push. MK must be reading this blog, because she kindly sent me this report from the Center from American Progress Action Fund that sums up the discussions going on over there. The consensus of US economists appears to be that a temporary tax cut will not be reflected in a lower gas price and the money will go to the oil companies. (Senator Clinton proposes an excess profits tax on the oil companies to sop it up, which is where “pointless” comes in.) Makes sense, I guess. But wouldn’t economists love to see something like that happen, just to see if their theory works?

Well, Japan just did that all of last month, and the fact of the matter is, thing haven’t quite turned out that way. On and around April 1, service stations engaged in a session of price cutting that only game theorists could love, and come May, they are reportedly going through somewhat similar gyrations, ultimately bringing gas prices up to pre-April levels plus cost adjustments for rising oil prices. What gives?

Two possible reasons: First, I think that Japanese gas supply is more elastic than America’s. Japanese demand is growing more slowly, so there’s likely more production capacity available to take advantage of lower costs. The US oil market is a crazy-quilt of state regulations that makes it difficult in the short-run to adjust supply to cross-state shifts in demand, except for interstate drivers as well as drivers living near state borders. The segmentation also makes it difficult to increase supply through imports. These elements add up to a US market where supply is highly and uniquely inelastic.

Second, a shift in the supply curve can cause also cause changes in gas prices. Japanese oil businesses may be more amenable to public pressure and moral suasion. They cannot forget how the public vilified them for raising prices during the 1973 Oil Crisis, and politicians and the government piled on. All cost changes should be of equal effect, at least in the short-run, but in Japan, some costs are more equal than others.

Here, actually, I’d like to segue into my take on the fall showdown by way of the latest Asahi telephone poll. Hope to do that later, but in the meantime, briefly:

The LDP-New Komeito coalition must come up with a credible fiscal reform package that covers expenditures. The DPJ should come up with a credible fiscal reform package that ties together all the promises that they’ve been making with regard to cutting tax cuts and increasing subsidies. My vote in the next House of Representatives general election goes to the one that does. My bet is on None of the Above. Please stay tuned.

Paul Krugman’s Take on Gasoline Tax Relief

Here, Paul Krugman agrees with every other economist on the planet and slams John McCain and Hillary Clinton for supporting a one-off, temporary suspension of the federal gas tax for the summer holidays. He doesn’t use the pander word, but he does call their plans evil (Mr. McCain) and pointless (Mrs. Clinton). Pretty strong words, no?

There are several obvious differences between the U.S. tax cut follies (another Krugman choice) and the one-month suspension in Japan. The following quote from Mr. Krugman’s op-ed happens to lay them out in bold relief:

I don’t regard this as a major issue. It’s a one-time thing, not a matter of principle, especially because everyone knows the gas-tax holiday isn’t actually going to happen.

A caveat here: The DPJ—as with the refueling operations—discovered this matter of principle well after it drew up its manifest. That gives its position something of a makeshift air. Still, it can still showcase itself as a party of substance if it can expose the Fukuda administration’s fiscal reform package as a whitewash of the status quo at the autumn showdown. If the recent behavior of the Fukuda administration and the ruling coalition is any indication, there's a good chance that the proposal will be vulnerable.

Hey, I’ve Got an Idea, Why Don’t We All Sit Out the Revote?

Do you remember Ichiro Ozawa, the head of the DPJ, being raked over the coals for skipping the House of Representatives revote on the bill that allowed the JMSDF to resume its refueling operations and going off to campaign for the DPJ gubernatorial candidate in Osaka, and Yukio Hatoyama had to make some lame excuse to the media? This time, on the revote for the gasoline tax surcharge, they’re all sitting it out. This time, Mr. Hatoyama claims that “to take the lack of a vote [in the House of Councilors after 60days] and deem it a vote down is an act of violence that leads to the argument that the House of Councilors is unnecessary”.

Did Mr. Hatoyama forget what happened at the end of the 2007-2008 extraordinary Diet session? Did Mr, Hatoyama forget the Japanese Constitution?

As if. See, if everybody’s offside, then nobody’s offside.

Mr. Hatoyama has found an ingenious way to keep the DPJ players in line. I guess we’ll have to wait till autumn to see which LDP and DPJ Diet members cross the aisles on the gasoline taxes.


ADD: It’s almost 11 PM, and I still don’t see this in the mainstream media. Have I scooped them all, KNC?

If You Remember the Original, Chances Are You Also Remember Gas Prices During the First Oil Crisis

...as a follow-up to this post...

Oh well there’s Chaves on my left arm and there’s Harper on my right,
And Abdullah is the guy that I’ll be buying from tonight
And when he asks me which one I love the best
I tear open my shirt and show Car Owner on my chest
'Cause I'm a panderer, yeah, a panderer…

I could easily have done this for our own domestic scene, but I’m not ready to pick sides yet. I’ve voted with the public sentiment the last two general elections, and that’s where I am right now.

There are Gasoline Taxes (i.e. Gasoline and Diesel Taxes), and There Are… There Are Gasoline Taxes

What does this remind you of? Hmm?

To quote:

Mrs. Clinton said the tax on the oil companies, which have been reporting record profits as oil prices soar, would cover all of the lost revenue from the federal tax on gasoline and diesel fuel. She also said no highway projects would suffer.

Mr. Obama derided the McCain-Clinton idea of a federal tax holiday as a “short-term, quick-fix” proposal that would do more harm than good, and said the money, which is earmarked for the federal highway trust fund, is badly needed to maintain the nation’s roads and bridges.

Can DPJ Dissenters Join the Ruling Coalition on the Other Side of the Road Money?

I swear I've never spent so much time on a single post. And it still needs editing. But I’ve run out of energy. Now back to life…

Tetsuro Yano is a three-term member of the House of Councilors (HC) whose only claim to national fame came last August during the wholesale Cabinet reshuffle that Prime Minister Abe undertook in a vain attempt to revive his political fortunes after the disastrous HC election the month before.

Many people, including Mr. Yano himself, had believed that he would be appointed to the Cabinet as one of two slots always reserved for the HC. Unfortunately, Mr. Abe was not among them, and kept Mr. Yano waiting in vain for the phone call that never came. (Mssrs. Yoichi Masuzoe and Shinichi Izumi got the nod.) Mr. Yano is not one to take things lying down, and made his displeasure known on national TV. He also called Mr. Abe and, if media reports are true, delivered a 25-munite diatribe.

Now, Mr. Yano is in the news again for giving a talk on April 23 in his home district where he claimed, “Some people are now emerging [among the DPJ HC members] who are willing to work with us. Pretty soon, those people are going to set up on their own.” The bone of contention is, of course, the gasoline tax revenue and its uses.

Coming from most people, this would be dismissed as mere pre-election tongue-wagging. That Mr. Yano is a member of the Ibuki faction--Bunmei Ibuki is the hardtalking Secretary-General of the LDP--raise more flags. However, the HC is a clubby place, and Mr. Yano worked closely with the opposition as the Chairman of the LDP’s HC Diet Affairs Committee between 2004 and 2007, so he should have a better-than-average idea of what’s going on in the hearts and minds of the people across the HC aisle than most of his LDP colleagues do. Then there’s Yasuhiro Ōe, the rebellious DPJ Councilor who claimed more than a month ago that he had the signatures of 39 DPJ Diet members (including 25 in the all-important HC) on a petition opposing the elimination of the surcharge.

But will enough DPJ Councilors break ranks and vote for or at least abstain from voting on the Fukuda administration’s tax bill to reinstate the surcharge? And if they do, will they break away to form a new party, or even join the LDP? If I had to make a guess, I’d say, possible, but unlikely.

On one hand, public works brings together one of the most powerful agglomerations of vested interests imaginable. Representatives of the provinces, whose economies are highly reliant on public expenditures, not to mention other old school, pork-barrel politicians, will find their beseeching hard to ignore. On the other hand, the DPJ wants to push the Fukuda administration and the ruling coalition over the edge on the issue, so the party leadership will come down more heavily on dissenters than in the case of the BOJ appointments*. In fact, there appears to be a real likelihood that the DPJ leadership will make it so uncomfortable for any members who vote with the ruling coalition on the tax bill that they will have no choice but to, in the words of Mr. Yano, “set up on their own”. Here, note that two of the likely ringleaders, Yasuhiro Ōe (2007), next to last, and Hideo Watanabe (2004) hold proportional seats. This is important.

Mssrs. Ōe and Watanabe and other HC proportional members in the DPJ, with their strong though limited local ties, are likely to find the siren call of the vested interests and assemblymen and mayors and governors hard to resist. But they have little appeal beyond their immediate environs, and as a result will have a hard time attracting votes over and above what they can carry over individually from their old DPJ haunts. Banding together, they will manage to elect the top vote-getters on their proportional candidates list, but the others will surely wind up losing their seats. They could stand for election in the prefectural districts in parallel, but that’s where they would be in the first place if they had sufficient local appeal, wouldn’t they? In fact, many of them are local losers who made it on the national list, so they would wind up being caught in the crossfire as the quasi-LDP, third-party candidate.

It turns out that Mssrs. Ōe and Watanabe are perfect examples of those likely losers. The DPJ won 19 proportional seats (allocated on a national basis) to the LDP’s 15 in the 2004 HC election, enabling Mr. Watanabe to scrape through at the very bottom, as the 19th highest vote-getter among the DPJ candidates. The DPJ was even more successful in the 2007 HC election, winning 20 proportional seats to the LDP’s 14, DPJ landslide victory, where Mr. Ōe slipped past the stiles in, yes, 19th place. In other words, in both cases, if the DPJ margin of victory in the popular vote had been much lower, they would very likely be out of a job now.

Would it help them to join the LDP outright then? Not necessarily. Mssrs. Ōe and Watanabe both received substantially less votes than the LDP proportional Councilors-elect with the least individual votes in the respective elections. Barring an LDP victory of 2004/2007 DPJ proportions, it is likely that they will lose their seats in their next elections.

Likeminded DPJ cohorts may be in a better position to bolt and hold onto their proportional seats. But remember, the number of seats that a party receives will be determined by the total of the votes for the entire party. A splinter party consisting of members with no national name recognition and without the money to field a large number of candidates with local appeal will be little more than the sum of its parts. A safe proportional seat in a big party would be at serious risk in a minor upstart. Those figures would be advised to switch to the LDP, rather than start a new one. Since we don’t have their names, it is impossible to be sure how many of them there are. What is clear is that their interests are not necessarily consonant with those of the two of the most prominent dissidents.


Yoshitake Kimata voted for Toshirō Mutō and was slapped with a one-month suspension, and is thus seen as a possible co-conspirator. He is elected from Aichi Prefecture, so he will not suffer from the same constraints that make a rebellion problematic for many proportional seat-holders. So could he join the LDP. But Aichi is a DPJ stronghold, with support from its powerful, moderate wing of the labor movement, with which global industrial giant Toyota has enjoyed very good relations. Mr. Kimata was himself one of two DPJ Councilors elected in the 2007 victory. The lone 2007 LDP incumbent will be very reluctant to compete against another LDP incumbent for what is likely to end up as one, not two, LDP seat in the 2013 HC elections. Other Councilors elected from prefectural districts may have an easier time of it, but in the 18 multiple-seat election provinces (with 4 or more seats, so that 2 or more are contested in any election), they could face fierce opposition from the LDP incumbents. Mr. Kimata and his non-proportional cohorts do have the option of setting up a party of their own. Good luck contesting the next elections as a small, quasi-LDP offshoot from the DPJ.

What is likely to happen, then?

Assuming that it continues to receive the unanimous support of the 105 LDP and Komeito Councilors, the Fukuda administration needs 17 non-coalition votes, 33 non-coalition abstentions, or combinations thereof for a HC majority. With more to lose either way, many potential DPJ dissenters will be strongly tempted to catch the flu, miss a connecting flight, anything, just to avoid voting at all. So if I’m reading the situation correctly, dissent will be expressed mainly through abstention and there won’t be many outright crossovers. That means that the coalition will require a fairly large number, much closer to the maximum 33 than the minimum 17, to step out of line if it is to gain a working HC majority. That seems like a tall order, though I don’t have the data to do a one-by-one analysis.

---

So far, I’ve argued that the opposition is more likely than not to be able to hold the line. But since I’ve been wrong quite often--not that professional pundits do a particularly good job of foretelling the twists and turns of the political game very well--it’s probably prudent to do a what-if and consider what sufficient crossover would mean to the coalition’s fortunes.

It is easy to think that this would yield immediate benefits to the LDP. They could very likely do more than just pass the tax and road bills without resorting to the House of Representatives supermajority override vote. In fact, in the case of an irrevocable DPJ split, they would be able to pass other contested bills as well.

But would the tactical success be a good thing for the LDP’s fortunes? I don’t think so. The would-be rebels are not going to bolt the DPJ just to put off the transfer of the gasoline tax money to general-purpose funds to FY2009 as the Fukuda administration intends instead of immediately as the DPJ demands, or just to reinstate the surcharge for the greater good as the Fukuda administration claims, but to keep as much of the money as possible for roads, earmark or no earmark. The would-be rebels will surely spare no effort to leverage their hold on the legislative fortunes of the coalition to achieve that aim.

This leverage that vested interests will be able to exercise on the end uses of the gasoline tax revenue will be bad enough on its own. But Prime Minister Fukuda has promised, with the post facto approval of the ruling coalition, to eliminate the earmark as part of “thoroughgoing” tax reform this autumn. In other words, Mr. Fukuda, he has linked the maintenance of the surcharge with what is very likely to be a substantial, albeit phased in, hike of the consumption tax, currently standing at 5%.

Now the public understands, in principle, the inevitability of a greater tax burden. But it has seen ample evidence of waste, corruption, and plain indifference; it will be ill-disposed to accept any tax package that is not accompanied by credible reform on the administration and expenditure of public funds. The public pension and healthcare systems are an obvious example of this; the road development and maintenance program is another. Mr. Fukuda faces a formidable task in putting together a publicly credible package by autumn. It will become even more daunting if vested interests could hold the gasoline tax revenues as hostage in return for their political support.

The coalition should be careful what it wishes for, don’t you think?

* I posted on the matter here. The three dissenters merely received “severe admonishments”.

As Big as the Gasoline Tax Surcharge Is, There’s a Much Bigger Tax (and Spend) Issue in Play

Two important bills have been passed by the House of Representatives and are now in the hands of the House of Councilors: the tax bill that, among other things, extends the gasoline tax surcharges for another ten years to 2018 March 31 (passed by the HR and sent to the HC on February 29); and the bill that extends the minimum level for the dedication of the gasoline tax revenues to road development and maintenance for the same period (passed by the HR and sent to the HC on March 13). The extension of the two measures is a logical consequence of the new ten-year Road Development and Maintenance Plan, which covers the same period.

Prime Minister Fukuda proposed – with subsequent quasi-official endorsement from the LDP and Kōmeitō leadership － to shorten the Road Plan to five years and more likely than not shrink its annual size based on new traffic demand estimates, and turn the road-dedicated funds (gasoline tax revenue) over to general purpose funds starting in 2009. He indicated, as an initial bid at least, to maintain the surcharge rate at its current level(25.1 yen per liter on gasoline), citing such reasons as global warming, international comparison of tax rates, and fiscal necessities. He intends to address that matter as part of a thoroughgoing tax reform. (This is extremely important. Please keep that in mind.)

Note that once you shorten and shrink the Road Plan, the surcharge (and, theoretically, even the base tax rate) must also be shortened and shrunk proportionately － unless the tax is delinked from its original purpose of developing and maintaining roads. By ceding the gasoline tax revenue to general purpose funds as part of a long-promised tax reform, the Fukuda proposal opens the door to keeping the gasoline tax at its current level indefinitely by subsuming the surcharge into the permanent tax rate. Within the LDP, this invokes the support of the fiscal hawks (people like Kaoru Yosano and Sadakazu Tanigaki), who want to take major steps to balance the budget but want to limit as much as possible what looks like an inevitable consumption tax hike; and the reformists (Junichirō Koizumi first and foremost), who want to complete unfinished business in the Koizumi reform (charitably describable as incomplete with regard to vested interests in the road money).

There is the predictable talk in the tabloids of the collapse of the Fukuda Cabinet as early as next month as the result of the battle between the reformists and the road tribe. I don’t see that happening. True, the bill currently in the hands of the HC extending the revenue dedication for another ten years － it is supposed to be eliminated in FY2009 － doesn’t make sense. However, the DPJ is holding out for an immediate discontinuation of the dedication, so it is unlikely to cooperate in amending the current bill now languishing in the HC to accommodate a one-year extension, and it doesn’t make sense for reformists to split the party and join hands with the DPJ just so the mandatory dedication can be discontinued a year earlier (while the actual budgetary allocation for this fiscal remains intact)*. It’s not impossible, but certainly improbable. Besides, on that specific issue, they can always split the party to far greater political effect if the LDP majority ultimately winds up rejecting the Fukuda proposal to end the dedication. That slightly more plausible but still highly unlikely event cannot happen until much later, in the lead-up to the throw-down with the DPJ over tax reform that begins in earnest in the fall.

The most serious potential for a reformist/roadist conflict lies in the debate over the substance of the Road Plan. The Plan will be by far the most important determinant of the eventual allocation of the revenue from the general purpose funds to road development and maintenance. There are two issues here: the length of the plan, and its size.

The five-year truncation will not be an issue, once the LDP and New Kōmeitō and the Cabinet take the necessary measures at the beginning of this workweek to bring the full authority of the ruling coalition and the administration to the Fukuda proposal. The New Kōmeitō is almost as well-disciplined as the Communist Party. In the LDP, the measure should have no trouble going through the Research Commission on the Tax System headed by fiscal hawk Shūji Tsushima and the Policy Research Council headed by the like-minded Sadakazu Tanigaki. The usually rubber stamp General Council gives the final authorization, but it is currently chaired by Toshihiro Nikai, who, together with Makoto Koga, head of Election Strategy Headquarters, are the two hetmen of the road tribe. However, the two kings of the roads gave their consent at the Wednesday meeting, so they will not give Mr. Fukuda any trouble here.

It is the determination of the amount that will give the Fukuda administration headaches. The fiscal hawks will make common cause with the reformists in battling the road tribe under the close scrutiny of the media and the opposition playing to an already mistrustful public. I expect that the coalition will come up with a new Plan, and agree to apportion the gasoline tax revenue accordingly. I have no idea what the public perception of the ultimate coalition package will be like. What I can be sure of is that the opposition’s response will driven largely by the public’s response, which in turn will largely molded by how it is received and depicted in the media.

But note that this is only part of the picture. At the same time, the ruling coalition must come up with a “thoroughgoing tax reform” package that places the gasoline taxes and the surcharge in proper context. The relationship is not trivial, by the way; the surcharge by itself is the rough equivalent of one percentage point of the consumption tax, currently at 5%.

A comprehensive tax package will have far greater political implications as an issue than the gasoline tax revenue. Fiscal policy perspectives cut across party lines, while the DPJ will also face a public reckoning of the fiscal consequences of the various promises that it has made under Mr. Ozawa’s leadership. This process will commence in full this fall and must be completed in substance by the end of the calendar year. Moreover, the ruling coalition must schedule possibly months of intensive negotiations with the opposition even if, or particularly if, it intends to exercise the HR supermajority override in the end. There will undoubtedly be major surprises as the process unfolds. The road money is a significant part of this process, but just that: only a part.

As a final note, it is important to remember that at least some of this can indeed happen under a different Prime Minister. Last Wednesday’s Diet faceoff with Ichirō Ozawa has been widely panned by the media and even some serious LDP politicians such as Tarō Asō and Kaoru Yosano, two men the media are playing up as pretenders to the Prime Minister’s seat. Although I only read an excerpted summary in the Sankei, in what I read, Mr. Fukuda came across as oddly querulous and plaintive, like an aging lover spurned in a 19th Century romance novel (or so one imagines). More seriously, this morning on Sunday Project, Mr. Yasano leveled strong criticism at the Prime Minister’s Office. Although it was an implicit indictment of Nobutaka Machimura, the Chief Cabinet Secretary who replaced him and perhaps the Administrative Deputy Chief Cabinet Secretary as well, the hint of leadership failure at an even higher level was also hard to miss.

I do not yet think that a premature departure is more likely than not. A Prime Minister has substantial staying power if he is willing to use the full arsenal of weapons available to him, Remember, Prime Minister Abe stayed on even after the disastrous 2007 HC election defeat and only left when his health finally failed him. Still, compared to fiscal reform that requires a consumption tax hike, the gasoline tax surcharge is almost a gimmie. Prime Minister Fukuda will not be able to get away with forcing his will on a divided coalition the way he did with his proposal on the road money. He will need every bit of help from the reformists and fiscal hawks to survive. He will also have to draw in likeminded Diet members from the opposition, mainly in the DPJ. One thing for sure: the tax package will make or break the Fukuda administration.

Ozawa Gets His Way on BOJ Deputy Governor

The House of Councilors voted to promote newly-appointed BOJ Deputy Governor and Acting Governor Masaaki Shirakawa to full-time Governor. However, it vetoed 121 to 115 the appointment of ex-MOF Vice Minister for International Affairs Hiroshi Watanabe, the Fukuda administration’s choice to replace him as Deputy Governor. From the DPJ, Hideo Watanabe*, Yasuhiro Ōe* and Masashi Fujiwara voted in favor of the latter appointment, while Tadashi Inuzuka**, Naoki Kazama, Yoshitake Kimata, Mitsuru Sakurai and Takashi Morita abstained. The Councilors who voted in favor will be duly punished. The abstainers will be excused, says Yukio Hatoyama, since “given the circumstances, it was inevitable.” Mr. Kimata, you may remember***, was already under a one-month suspension for voting in favor of promoting the ill-fated Toshirō Mutō. Although the Japanese Criminal Code does not have a three-strikes clause, two-time offenders can receive heavier sentences.

The DPJ showed remarkable discipline, “given the circumstances”****. All credible news reports contend that majorities of both the party leadership and the rank-and-file in the DPJ supported Mr. Watanabe’s candidacy, but Ichirō Ozawa shot it down. The irony is that it’s evidently payback for opposing Mr. Mutō’s original candidacy, which Mr. Ozawa had been inclined to support. I know that he’s cutting off the nose to spite the face － editorial writers and talking heads are going to have a minor field day over this － but it is vintage Ozawa. Sure, it’s a public relations setback, but he could have split the party over this, do the kind of nasty he has not hesitated to do from his LDP days. His colleagues knew this, so they had no choice but to go along. Besides, they have plenty of battle-scars from the BOJ appointment votes, so one more wouldn’t put them over the PR pain threshold.

There appears to be a fairly common perception, particularly among Mr. Fukuda’s LDP enemies, that the Prime Minister has botched the entire BPJ appointment process. I don’t know about that; the DPJ is worse off than the Fukuda administration, and that would not have happened if Mr. Fukuda had tapped Mr. Shirakawa (or Mr. Watanabe for that matter) in the first place. Remember, you only have to make sure that you run faster than the other guy to escape from the marauding bear. Still, it makes good copy for the media (snap election, please) and trope for pretenders (can’t fight election under that wuss), so expect to keep hearing it.

And with that, attention turns back to the gasoline tax surcharge. That’s Mr. Fukuda’s real touchstone. Is he as half as crazy as Mr. Ozawa － willing and able to wield his own nuclear weapon? That Prime Minister’s prerogative, together with normal party discipline, should see him through. Which, when you think about it, is a better-case long-term scenario for the DPJ, if not for someone who shares the very mortal Mr. Ozawa’s sense of urgency.

BTW, I’m beginning to feel a little sorry for Mr. Hatoyama, who has to keep going out there as Mr. Ozawa’s Deputy and explain things to the media. (At least one mainstream news report puts Mr. Watanabe’s name on a list of five acceptable candidates that Mr. Hatoyama gave to the LDP). How many more times does he have to first talk out of one side of his mouth, then another, before he yells, I’m mad as hell and I’m not going to take this any more?

* Mssrs. Watanabe and Ōe first came to the blog’s notice in January, when they joined mostly roadies and fellow travelers from the LDP at that road money retention meet-and-greet for prefectural assemblymen.

** Mr. Inuzuka claims that the voting machine must have malfunctioned, since he voted against both appointments.

ADD April 10: Today’s hardcopy Yomiuri has kindly provided a more complete list of the justifications/excuses, which I record here for future reference:
Voting in favor:
Hideo Watanabe: Making the decision with a view to the political game in disregard of the opinions in the organization will not earn the trust of the public.
Yasuhiro Ōe: The party was leaning towards agreeing [to the appointments]. We should act in a way befitting the largest party in the House of Councilors.
Masashi Fujiwara: The button I pushed says it all.
Abstaining:
Tadashi Inuzuka: (His office stated that he said he pushed the “no” button.)
Naoki Kazama: I mistakenly pushed the wrong button.
Absent:
Mitsuru Sakurai: It’s not right that we decided to oppose the appointment when more than 70% of the members of the [DPJ Public Finance and Financial Sector] Departmental Committee supported it. If people think that we’ll oppose everything, it will become difficult to seize power.
Yoshitake Kimata: (His office stated that he had returned to his home district and could not arrive in time for the vote.

Four DPJ members skipped the House of Representatives vote:
Masayo Tanabe: (Her office stated that she had to campaign for the DPJ candidate in the HR Yamaguchi 2nd District by-election.)
Hiroko Nakano: (Her office gave an injury as the reason for her absence.)
Hideo Hiraoka: (His office stated that he had to prepare to stand as the DPJ candidate in the HR Yamaguchi 2nd District by-election.)
Motohisa Furukawa: At one point, we had indicated to the government that Mr. Watanabe would be acceptable as Governor.

*** Posted, very briefly, here.

**** Showing less discipline but a rather keen sense of gallows humor, Kenji Yamaoka, the DPJ Diet Affairs Chairman left a message on Mr. Watanabe’s phone telling him that he wouldn’t have the votes to be affirmed. He claims that he called to soften the blow.

Governors and Ex-Mayors Speak Out on Gasoline Tax Surcharge and Earmarking

Yomiuri conducted a gasoline tax survey of all 47 provincial governors on the surcharge and the earmarking for roads and reported the results in today’s (April 8) hardcopy version. Unsurprisingly, 42 supported the maintenance of the surcharge, while none opposed it. However, when it came to conversion of the gasoline tax revenue to general-purpose funds, only four governors supported Prime Minister Fukuda’s proposal. 11 opposed it, while a whopping 32 remained undecided.

Asahi has an online article entitled:

Road-Earmarked Funds; True Confessions from Retiring Mayors Who Signed “Supporting” [Petition]
道路特定財源、「支持」署名した引退市長たちのホンネ.

According to the report, only six of the 1800 mayors nationwide had refused to sign a petition circulated last November by the “National Committee of Alliances to Actualize the Promotion of Road Development and Maintenance” demanding that “all the road-earmarked funds shall be used for the raod development and maintenance and the temporary tax rate shall be extended beyond fiscal year 2008.” Asahi contacted 38 of the 45 ex-mayors who did not run for reelection and instead retired last year to ask their current views on the earmarking. 35 gave answers, including three who were still mayors at the and actually signed the petition. According to the report, 13 of the 35 supported total conversion to general funds, four supported a partial conversion, and another actually supported the elimination of road taxes altogether. Of the 17 conversion supporters, 10 supported the elimination of the surcharge, and none supported the maintenance of the surcharge at current levels. Of the three ex-mayors who signed the petition, one now supports conversion.

I know too little of the mechanism for the distribution of the funds and the actual allocation to local governments to be able to parse this information. It’s interesting to me, though, that a) local leaders are not as committed to the road tribe’s cause as it wants people to believe; and b) so many incumbent governors are sitting on the fence with regard to the abolition of earmarking; though c) there are a larger number of ex-mayors who still favor earmarking. I can think of a variety of reasons for these results, but to repeat, I don’t have the wherewithal to weigh them properly. My hunch is that the political party that is able to figure it out will be in a position to come up with the winning formula. I wonder if someone in the DPJ is working on it.

Gasoline Tax Surcharge Reinstatement Revisited: Messing with Your Minds

MTC and Tobias disagree with me, and Heaven knows I’ve been wrong as often as the next guy. The results will be in by the end of the month with a couple of days to spare, but here are a few things to consider in the meantime:

1. The LDP relies more on the local political establishment than the DPJ does, so its members should be more vulnerable to the pressure local politicians are putting on them to reinstate the gasoline tax surcharge. Remember, the Post Office privatization rebels crossed party lines on behalf of a key player in their electoral political machines.

2. The hold that LDP factions continue to have on their members is somewhat mystifying, but there you are. What is, is. Needless to say, it is much harder to tear someone away from a collaborative group that meets regularly to reinforce their mutual commitment. Independents lack that layer of protection and should be correspondingly more vulnerable to poaching. Love, war, politics － it’s always the same.

3. Failure to extend the surcharge by a supermajority revote will likely shatter the LDP*. The stakes are much bigger for it than it is for the DPJ. They’re more likely to stayhang together, lest they hang togetherso they won't hang separately. The DPJ on the other hand sees reinstatement working to its electoral benefit. This means that the DPJ has less political incentive to keep its own (as well as other opposition) Representatives onside.


4. At least none of the LDP Representatives have come out openly against reinstatement. Contrast that with the DPJ, where Yasuhiro Ōe openly defied the party leadership and claimed to have a significant number of fellow DPJ Diet members’ signatures on a petition. And look at what the DPJ is meting out as punishment. If you vote against the party line, you get a one-month suspension; if you can’t stand even that, all you have to do to avoid it is to abstain, or absent yourself. (See also point 3, last sentence.)

Is MTC claiming that LDP politicians are dumber than DPJ politicians? Or that I’m doing so? Maybe he’s right, but I’m sure they know what their support base is. As I said, the results will be in. Stay tuned.

* ADD: Of course they could always back off a revote to avoid a showdown. But that would leach the life out of the LDP. I don’t see how the party leadership can let that happen.

Ducks Lining Up for Prime Minister: What Next?

The youthful Ichita Yamamoto (LDP, Gunma) is one of the more thoughtful and entertaining members of the House of Councilors. He plays in his own rock band and posts regularly on his own blog. It’s pretty informative, too. For example where else could you learn that all the LDP factions hold meetings every Thursday (no doubt to allow their members to make the trek back to their constituencies for the long weekend)? That’s useful in maintaining unity within the factions, since their ability to raise money for their members and find them Cabinet appointments has been greatly diminished.

Mr. Yamamoto also informs us that the Tsushima faction (69 Diet members; 47 Representatives, 22 Councilors), the Kōchikai (Koga-Tanigaki faction) (61; HR 50, HC 11), the Yamazaki faction (41; HR 38, HC 3), the Ibuki faction (28; HR 22, HC 6), and the Nikai faction (16; HR 14, HC 2) each passed a resolution to reinstate the gasoline tax surcharge with the House of Representatives supermajority override*. Support from the Machimura faction (86; HR 60, HC 26) can be taken for granted, and the Asō (18; HR 15, HC 3) and Kōmura (15; HR 14, HC 1) factions should fall in line as well. That’s 260 members in the all-important House of Representatives, leaving the 44 independents, including House of Representatives Chairman Yōhei Kōno, free to defy party discipline to go their own ways. The New Kōmeitō are more disciplined than the LDP. So, unless there are surprise defections from the faction ranks, the DPJ needs to tear off 16 out of 44 LDP independents and keep all the opposition and other unaligned Representatives on-side in order to stop the surcharge from being reinstated.

Given the open defiance from some of its own Representatives such as Yasuhiro Ōe and the limp slap-on-the-wrist one-month suspension of a Councilor who voted for the LDP candidate for BOJ Governor, it’s unlikely that maintaining the HC veto is the DPJ game plan. Instead, it probably wants to force the coalition to exercise the override and hope that the unpopular measure will damage the LDP more than all the politicking is hurting the DPJ.

* Here and here.

One Month Probation for Voting against DPJ Party Line

Today (April 4), Yoshitake Kimata, the lone DPJ Upper House member who ignored an official party decision and voted (unsuccessfully) to install Toshirō Mutō to BOJ Governor, had his party membership suspended for one month. Does that mean that he doesn’t have to pay his party dues this month?

Deputy party leader Yukio “Where’s Ichirō” Hatoyama told reporters, “We punished him severely because these are important times, when party members must act as one.”

So much for “important times.”

For Tarō Kōno and His Cohorts, It’s Not Just about the Money

Tarō Kōnō, the somewhat-outlier Lower House member for the LDP (it’s easy to get away with a little eccentricity when you are a multi-heritage seat-holder), supports the Prime Minister’s gasoline tax-and-spending proposal, and according to this Mainichi report, is one of the ringleaders of the new “Group to Support the Fukuda Proposal and Achieve the Conversion of Road-Specific Funds to General Funds 「福田提案を支持し、道路特定財源の一般財源化を実現する会」”, a 55-member group of relatively junior LDP and New Kōmeitō Diet members that held its first meeting yesterday (April 3). In fact, he supports it so strongly, he actually opposes it. Well, sort of. For Mr. Kōno intends to vote against a legislative bill that features a ten-year extension of a provision in the special measures act that regulates the use of the gasoline taxes revenues, rightly pointing out that you don’t need a ten-year extension if you intend to eliminate the road-specific funds next year. The bill passed the Lower House and sent to the Upper House on March 13. The 60-day magic deadline falls on May 12. First, let’s look at the immediate consequences.

There are three possibilities. The first scenario is the simplest one. The Upper House rejects the bill or does not vote by May 12, and the Lower House ultimately passes the bill unaltered in a super majority override. There will be some political fallout, and the battle will recommence later in the year. In any case, the ruling coalition must come up with an amendment during the is fiscal year in order to keep Prime Minister Fukuda’s promise to end the earmark in FY 2009.

The second scenario also follows Upper House rejection/neglect, but enough coalition members abstain (possibly, just possibly, vote against it) that the bill fails to pass. It’s highly unlikely, but not impossible. If every member of the Lower House not a member of the coalition except the Chairman votes against the bill in the revote (improbable, but let’s keep it really simple) and the Chairman abstains, then only 16 47 (Big mistake. This post should be rewritten to reflect the much lower probability of this happening, but you see my point.) coalition members need abstain for the supermajority override to fail. That’s not an inconceivable figure, but remember, there are independents and rogue DPJ members who could very well go the other way (say, the six Lower House members from New People’s Party, whose leaders you must remember were kicked out for opposing the Post Office privatization bill, the cornerstone of the Koizumi reforms), so the actual number of abstentions needed to kill the bill should be higher. Conversely, if (in the highly unlikely event that) some of Mr. Kōnō and friends actually vote against it, the coalition will need more votes in favor that in the case of abstentions only. The immediate practical consequences of a vote-down are surprisingly minor. The dedication of a minimum amount of the gasoline tax money (actually most of it, but that’s the way the provision is constructed) to the road development and maintenance fund will end this fiscal year (FY2008), one year earlier than the Fukuda Proposal. But this should not affect the relevant budgets, which came into effect at the beginning of this fiscal year, since there are no legal limits to the amount of gasoline money that you can put into the road development and maintenance budget. Politically, though, it will be a source of great embarrassment to the Fukuda administration, and seriously damage its prospects for long-term survival. But the main event is the surcharge extension, whose 60-day waiting period expires on April 29, and the coalition should be able to stick together through that. That means that the Fukuda administration will survive in any case through the summer.

The third and most unlikely scenario － let’s say about as unlikely as a giant meteor hitting the Diet building while both Houses are in meeting in plenary － is that the coalition and the opposition agree to amend the bill to limit the extension to one year. The DPJ will not make any such concessions, though, unless the LDP agrees to drop the surcharge immediately. The two measures － the surcharge and the minimum earmark － not linked legally, but are indivisible in the political minds of the DPJ leadership. It wants to force the coalition to exercise the supermajority as often as possible on this issue.

The most interesting aspect of the new group, though, as Tobias Harris points out here, is its generational implications. For Mr. Kōnō and the other LDP leaders of the group, Yasufumi Tanahashi and Kenichi Mizuno, are a relatively youthful 45, 45 and 41, respectively. Yet because of the early start they got in politics (two of them are heirloom Diet members and the other is a former, second-generation bureaucrat), they are already into their fourth term as Lower House members. (One of them actually served as a Cabinet member in the Koizumi administration.) The Seisaku Shinjinrui, headed by men such as Nobuteru Ishihara and Takahisa Shiozaki, first made their mark in the late 1990s on the occasion of the financial Big Bang, and continued to play a significant role in the Koizumi reforms. However, they all are now well into their fifties, and the political clock in the LDP has gone into reverse. Shinzō Abe, the only Prime Minister of their generation, has been followed after his short, unhappy regime by that the Mr. Fukuda, a septuagenarian, who in turn is being stalked by the 67-year old Tarō Asō. All of the major Cabinet posts are going to men in their sixties. Junichirō Koizumi, who could reclaim the Prime Minister’s chair any time he wants, is 66. And pulling strings behind (and sometimes in front of) the backdrop is former Prime Minister Yoshirō Mori, who… But you see my point.

As it happens, the articulate trio, as reform-minded Koizumi disciples, have a measure of influence over the Koizumi Kids, who must be beside themselves with worry over the prospects for their next election, which they must face no later than September next year. They surely must have ambitions of leapfrogging their immediate elders, the former Seisaku Shinjinrui (my generation!), whose careers appear to be stalling for the moment**. Holding up the reform flag anew and calling on their colleagues to rally around it is a good way to make some of that Koizumi magic rub off on them as well.

* Incidentally, Tobias’s essay is very well argued, although I do not fully agree with his analysis. The current clash “on a matter of principle” at bottom, like on all the other issues that he lists, currently boils down to a conflict grounded on political convenience. The public is aware of this, which is why the public is disillusioned not only with the LDP and the Fukuda administration, but also the DPJ.

** Note that Mr. Ishihara, who had thrived as an independent, succumbed to the siren call of the habatsu and recently joined the Yamazaki faction. This has moved him forward as a Prime Minister candidate, but also brands him as a conventional politician.

Why Fewer Yomiuri Poll Responders Appreciate Surcharge Expiration... but the Real Battle Comes...

According to the Yomiuri poll, 56% of the responders said that the drop in gasoline prices due to the expiration of the surcharge was a good thing. That’s pretty high, but much lower than the 72% in the Asahi poll who said that the lower gasoline taxes were a good thing. They both ran random telephone polls, so it couldn’t have been the methodology. So was it the different terminology (Yomiuri=“gasoline prices”, Asahi=“gasoline taxes”)? Or could it have been… something else?

You be the judge; I’ll translate the questions for you.

Yomiuri

Gasoline prices will go down because the temporary rates [i.e. surcharge] for the gasoline tax and other taxes (other automobile fuels) expired, but national and local government budgets will face deficits, and there is confusion at service stations. Do you, or do you not, think that it was a good thing that gasoline prices went down?

ガソリン税などの暫定税率が期限切れしたことで、ガソリンは値下がりしますが、国と地方の予算不足が生じるほか、ガソリンスタンドでは混乱も起きています。あなたは、ガソリンが値下がりしたことを、良かったと思いますか、そうは思いませんか。

Asahi

Gasoline taxes will go down in April and beyond because the government parties and the opposition parties could not reach agreement with regard to gasoline taxes. Do you think that it is a good thing that the gasoline taxes will go down? Do you think that it is not a good thing?

ガソリン税を巡り政府・与党と野党の合意ができなかったことでガソリン税は４月以降下がることになります。ガソリン税が下がることはよいことだと思いますか。よくないことだと思いますか。

Seriously, there are other differences in the results, but broadly speaking, they convey more or less the same message, which has remained relatively constant: The Japanese electorate overwhelmingly favors the expiration of the gasoline tax surcharge and the conversion of the revenue to the general budget, but it also wants the opposition to accept Prime Minister Fukuda’s offer of consultations. The political returns for the DPJ in terms of electoral support have been meager, though there is no uptick for the Fukuda administration either.

The real battle will come when the ruling coalition finally gets serious with tax reform after the summer recess. Beginning with the 2007 Upper House election, the DPJ has basically been cutting trillion-yen checks to the public (most notably government funding for basic public pension, trillion-yen payoff to small-scale farmers, elimination of gasoline tax surcharge). If it can add up those figures and convince the public it knows how to pay for them, as well as draw down the enormous public debt overhang, it wins. It should be as simple as that. The DPJ has already exposed the existence of much government incompetence, negligence and waste, but the time has come to put together its case for a bicameral takeover.

Discrediting the status quo while waiting for the coalition to fall into yet another string of political blunders? That’s a strategy that relies too much on chance. And chances are, we’ll end up with the same-old, a weak government with a divided Diet for the next five years

Coalition Leaders Line up for Prime Minister on Gasoline Taxes

In case anyone is still thinking that Yasuo Fukuda is up that creek without a paddle, yesterday (March 31), the Secretary-Generals, Policy Research Council Chairmen and Diet Committee Affairs Chairmen of the LDP and New Kōmeitō met with the Chief Cabinet Secretary and confirmed the coalition’s intent to “go into consultations with the Prime Minister’s proposal as the basis”. Bunmei Ibuki is the LDP Secretary-General who initially pointed out to the press that the proposal had not received the formal blessings of the LDP and － possibly knowingly － gave the DPJ a rather contrived excuse to say no to any negotiations before the gasoline tax surcharge expired.

Makoto Koga, the leader of the road tribe and powerful faction leader, also fell in line, stating, “(The Prime Minister’s proposal) must be received with humility. I have my own opinions, but I wish to value of the party uniting and going forward in the same direction.” Not the most enthusiastic of endorsements, butt as Head of Election Strategy Headquarters, a post he won after rejecting the General Council Chair (the least powerful of the LDP Big Three before Mr. Koga made it the Fantastic Four, the others being Secretary-General and Policy Research Council Chairman), he must also have been mindful of the difficulties of fighting the next Lower House election without a cover for resurrecting the unpopular “temporary” surcharge.

For nothing can be worse in political terms for a coalition Diet member who is not a diehard road tribalist than to go into the next general election with the gasoline tax and road development and maintenance plan back in place in their original forms. Even most roadists would appreciate the political cover they will receive from the Fukuda proposal, which actually leaves the door open for them to maintain at least some de facto control over the eventual disbursement of a substantial portion, if not all, of the revenue (which, incidentally, is why pressure from and shared oversight by an engaged opposition is vital). After all, they must have other, less-monied but quite numerous constituencies who will not fully appreciate the concerns of construction firms and their dependents.

Even those who are dead set against transferring a single yen of gasoline tax money to the general budget, let alone returning the money to car owners by giving up a single basis point on the surcharge (something, to be fair to the DPJ, that Mr. Fukuda has not said explicitly that he is willing to do), will think twice before defying the Prime Minister when push comes to shove, when they recall what happened to Lower House LDP Members who voted against Prime Minister Koizumi’s Post Office privatization plans. Lest other LDP members think similar punishment too harsh and side with rebellious forces, Mr. Fukuda, as Prime Minister, retains the nuclear option of dissolving the Lower House and calling a snap election.

It also helps that Mr. Fukuda has the unswerving support of the Machimura faction, the largest and most successful faction in the entire LDP. This large core support helps in a crisis. It is instructive that Toshiki Kaifu, the Prime Minister who resigned instead of making good on his threat to call a snap election, had very little help in this respect, whereas Shinzō Abe, also of the Machimura faction, managed to stay on against the wishes of many coalition members and most of the public and the media after the 2007 Upper House election disaster had validated his dismal approval figures.

In short, Mr. Fukuda has maintained control over his party on this issue until the next Lower House election.

Now, I’ve believed for some time that the road that Mr. Fukuda took was the only viable option for the Prime Minister and the ruling coalition, so I do feel like I’m having the vicarious pleasure of seeing him recapture the proverbial giraffe. But, Will it actually work?, you may ask. Well, if I knew, I would be a rich man, wuoldn’t I, for it all depends on what happens between now and the election, and how Mr. Fukuda plays the game. So with that copout, I lay my virtual pen to rest.

For today, that is; it’s a small giraffe Mr.Fukuda’s caught himself, and even that takes a lot more effort to kill.

What Does It Mean When the Media Urges the DPJ to Come to Terms on Gasoline Taxes?

Over the weekend, all the major dailies wanted the DPJ to take up the latest version of the Fukuda offer. Look at the op-ed titles:

Asahi*
March 28
Japanese The Prime Minister’s Decision － It’s [DPJ] President Ozawa’s Turn to Respond (首相の決断―小沢代表が応える番だ)
English Debate over Road Taxes
March 29
Japanese To the DPJ － Make the “Fukuda Proposal” Bear Fruit 民主党へ―「福田提案」を実らせよ
English Proposal on Road Taxes

Mainichi
March 29
JapaneseDPJ － Return to the Starting Point of Reform 民主党　改革とは何かの原点に戻れ
March 30
March Putting Road Money into General funds － Don’t Lose a Great Opportunity for Budget Reform 道路財源一般化　予算改革の絶好機を逃すな

Yomiuri
March 28
JapaneseThe Prime Minister’s Amended Proposal － The DPJ Must Also Make a Bold Compromise－ 首相修正提案　民主党も大胆に妥協せよ（3月28日付・読売社説）
English DPJ must make concessions in tax row
March 29
Japanese Gasoline Taxes － Strive Till the End to Avoid Confusion ガソリン税　最後まで混乱回避に努めよ

Sankei
March 28 The Prime Minister’s Emergency Press Briefing － The DPJ Must Accept Policy Dialogue 首相緊急会見　民主は政策協議に応じよ
March 29 Budget Passes － Avoid Confusion with Regard to on Gasoline Too 予算成立　ガソリンでも混乱避けよ

But, you may ask, Does anyone read the editorials?. Well, I did this time, if only to write this post. But that does not mean that editorials are meaningless. In a land where newspaper journalists stay in one major print-and-TV media family for their entire working lives (barring corporate catastrophes, one of which created the perfect marriage between Sankei and Yoshihisa Komori), the editorial writers are merely a group of the senior, lifetime in-house reporters who have passed the first important up-out-out-to-the-boondocks test in their career paths. What this means is that the views expressed in the editorials are mirrored in the reporting of the actual news, since both sides are the manifestations of the singular, unchanging corporate anima, with no WSJ-like divide between the two. Thus, the ideological and policy preferences of any newspaper (and choice of professional baseball teams in the case of Yomiuri) are incessantly drummed into the minds of its faithful subscribers, channeling, honing and amplifying their responses to issues that may not otherwise invoke visceral reactions.

I may be exaggerating a little, and surely speculating a lot. I cannot read the minds of my fellow Japanese, and do not know firsthand their newspaper reading habits beyond those of my immediate family. Moreover, I do not watch much Japanese TV, so I am relatively ignorant of the tone and content of what appear to be the ideologically less constricting TV news programs and the more popular general-purpose wide shows. Still, when all the major dailies from the Asahi on the left to the Sankei on the right agree on an acutely divisive political issue, that is bound to influence the public’s take on the relative merits of the political position that the two sides have chosen. It surely must also, in this instance, help the Prime Minister keep the road-tribe and other dissidents within the coalition in line as far as his proposal to consign the gasoline tax money to the general-purpose funds is concerned.

The DPJ deserves huge credit for making full use of the opposition’s Upper House majority and the public’s support, thereby registering a major political victory and potentially substantial change in the future use of the gasoline tax revenue. Remember, a Prime Minister no less than Junichirō Koizumi earned a big fat incomplete on this one. However, by refusing to take what was offered and continue what could be very public negotiations for the remainder of its demands (elimination of the surcharge rate, and other reforms), it threw away the political benefits of its achievements and instead exposed its actions to accusations of playing politics with the public’s wellbeing. Yet again, the DPJ has managed to display its dismaying knack for adding up to less than the sum of its parts.

Prime Minister Fukuda, to be sure, is not out of the woods. The surcharge is unpopular with the general public and should remain so, yet he has no choice but to have the coalition exercise its Lower House supermajority to pass the surcharge extension as is come April 29. Moreover, there is a widely held sense of waste, if not outright corruption, in the use of the road money, but he will face fierce opposition from powerful vested interests, including within his own party, that seek to maintain the status quo. However, if he manages to make a show of his resolve with regard to the revote while maintaining the doors open to negotiations with the opposition; and, through autumn and beyond, enforce his proposal on the coalition and actuate visible changes in the size, content and execution of the road plan even as the DPJ remains outside the actual reform process, then he should be able to maintain and enhance public support for his administration, even in the face of continued displeasure of the public with regard to expensive automobile fuels.

---

This will all be idle speculation if the economy takes a visible turn for the worse. Then, even the DPJ’s latest justification for dropping the gasoline taxes － it’s an anti-recession measure － will gain credibility. But that is a chance that Mr. Fukuda will take.

* FYI the Asahi takes the judgmental elements out of the editorial titles when it translates them. It apparently does this to all its editorial translations, not just these two.

Isolation Play Called for Gasoline Taxes; Watch Tabloids and Weeklies Come Out

The LDP road tribe and its fellow travelers are expressing dissatisfaction with Prime Minister Fukuda’s definitive package. I suspect that it’s mostly show; they have their own rafters to play to. Mr. Fukuda’s initial bid keeps the surcharge intact for the time being, and money for public works is officially supposed to continue shrinking anyway. But that doesn’t mean that there won’t be a lot of resistance over the summer, as various interests, vested and non-, line up for the autumn battle over tax reform. Here, Mr. Fukuda will not be without formidable LDP allies, not least the ever-popular ex-Prime Minister Koizumi and his loyal minions (and the ever-present faction head and former Prime Minister himself Yoshirō Mori).

Not so, of course, the tabloids and the non-newspaper general-purpose weeklies. For them, it’s always been trip it if it moves, shove it if it doesn’t. In fact, the tabloids have been having a field day with stories about the imminent demise of the Fukuda administration, and this trope will gain momentum in the coming weeks. Do not be overly scornful of the muckraking horde; they went after Prime Minister Abe like mad, and you know what happened to him. On the other hand, they relentlessly hounded Prime Minister Koizumi as well, with notably less success. For my penny’s worth, barring unforeseen circumstances, it’s up to Mr. Fukuda and his willingness to threaten his coalition colleagues with the dreaded Lower House nuclear option. (Will he or won’t he risk a snap election?) Either way, the battle should heat up in earnest after the summer holidays.

ADD (March 29): I'm not predicting that Mr. Fukuda will actually have to threaten the LDP and the New Kōmeitō with a snap election to keep them in line, but I do believe that he will have to let people know that he is not afraid of using it. Do you remember Toshiki Kaifu? In 1991, as a highly popular, if somewhat ineffectual, Prime Minister, he threatened to dissolve the Lower House when the LDP did not go along with his political reform package, but lost his nerve and resigned instead.

---

I take this opportunity to note that the two sides have come to their senses as they agreed today to pass an emergency bill that will extend the non-gasoline special tax measures for two months in exchange for a coalition promise that it will not use it as a pretext to pretend that the original government tax bill has been rejected in the Upper House and exercise the supermajority override in the Lower House. At the end of the day, neither side is that stupid.

Sometimes I Won’t Then Again I Think I Will

Get it right, that is. Yesterday (March 27), Prime Minister Fukuda held a press conference that upped the ante on his earlier statement, with a more specific proposal on the gasoline taxes and the road construction budget and calling on the opposition to join the LDP and New Kōmeitō in joint consultations. The Sankei has posted the full text of the briefing here and here. The hardcopy Yomiuri has a convenient outline of the latest proposal, which I will once again translate, appropriately edited, for your convenience:

1. Enactment of the FY2008 revenue bills during this fiscal year (FY2007).
2. Thoroughgoing elimination of waste from expenditures related to the Road Development and Maintenance Budget.
3. Abolish the road-specific funds system on the occasion of this calendar year’s fundamental amendment of the tax system and turn the revenue over to general-purpose funds beginning in FY2009.
4. The tax rates including the temporary surcharge shall be examined, taking into consideration such matters as the international undertaking on global environmental issues and the need to develop and maintain local roads.
5. A Mid-term Road Development and Maintenance Plan shall be newly formulated for a five-year term (i.e. shortened from the current ten year plan currently being proposed by the Fukuda administration and the ruling coalition).
6. The new development and maintenance plan shall also be reflected in the implementation of the FY2008 budget. With regard to the use of the FY2008 funds, the Fukuda administration will be open to consultations if there is a realistic proposal from the DPJ.
7. Establish a consultation group between the ruling and opposition parties and consult and decide the principles for the use of the gasoline tax revenue as general-purpose funds, the Road Development and Maintenance Plan, and other matters.

On a related matter, this Yomiuri reports says that government sources have indicated that any extra taxes collected as the result of the temporary elimination of time-limited tax benefits on April 1 will be refunded. As I indicated before in my mock coalition announcement, this does not require any additional legislation, but the Yomiuri leak is an indication that the government is preparing for a supermajority override. The report says that this will be part of a Prime Minister’ s announcement on the overall issue at the end of this fiscal year, meaning presumably March 31, i.e. next Monday.

So now what? To answer that question, we must first take a look at the broader political picture.

The major political setbacks to the Fukuda administration have been the following:

1) The revelation that it could not keep the Upper House election campaign promise (made by Prime Minister Abe to be sure) to identify all the holders of the 50 million misplaced public pension accounts.
2) Its failure to come to terms with the type-C hepatitis patients who contracted the disease from blood transfusions and fibrin sealants.
3) The JMSDF Aegis destroyer Atago’s collision with a fishing vessel and the government’s faulty response.

Yet it is instructive that Yōichi Masuzoe, the outspoken Health, Welfare and Labor Minister on the watch for both 1) and 2), enjoys by far the highest approval rate (beating out even the highly popular “No one/no answer” by a healthy margin), and that Defense Minister Shigeru Ishiba, the defense otaku on the watch for 3), comes next, though he did lose a lot of goodwill as the result of the accident and its aftermath. What these two men have in common is the appearance of a sincere desire to get things done in the public interest and the ability to project it to the general public. They have a touch of that inimitable political skill that Junichirō Koizumi had in droves. In contrast, Mr. Fukuda has appeared indecisive and ineffectual, and his political style, once seen as soothing and reassuring, does nothing to dispel that impression.

However, Mr. Fukuda, or perhaps more appropriately the ruling coalition, has been saved by what appears to be a creeping public disillusionment with the DPJ’s highly and visibly politicized approach to policy issues. This had become evident with the continuing standoff over the appointment of a BOJ Governor*. The Fukuda administration may be falling in the public polls, but support for the LDP seems to have stabilized; the DPJ, if anything, is doing worse than the LDP. On this note, it is now time to go back and address the subject of Mr. Fukuda’s announcement.

Public opinion polls show that two-thirds of the Japanese voters consistently want the surcharge to be dropped, yet the DPJ has not been able to capitalize on it politically. A similar majority of voters wants the two sides to come to an accommodation, and is clearly not buying the DPJ’s hard-line approach. Mr. Fukuda has finally come out with a substantive proposal that promises to take some money away from the road tribe (though the ultimate outcome will not be clear until we see a new road plan and the actual allocation of the funds). There appears to be substantial internal opposition from the road tribe, but this will only serve to enhance his reputation, provided he can actually deliver credible reform. In any case, he has acted, and given the impression of acting decisively. This is definitely a plus for Mr. Fukuda.

So what will the future bring? First of all, I do not believe that April will be the kindest month for the DPJ. The public support for a compromise on the surcharge and the road construction earmark as well as the DPJ’s own languishing support numbers show that its shifting explanations for its stand (now claiming that dropping the surcharge is an antirecessionary measure, a plausible explanation for a temporary, say, one-year lapse) is taking its toll and deepening the impression that the DPJ is playing politics. Whatever confusion arises, which I expect to be relatively minor and therefore easily weathered, is likely to be attributed more to the DPJ than the ruling coalition. Yet the DPJ is locked into an absolute opposition to the surcharge and the road construction earmark, making it difficult to take credit for any concessions that the Fukuda administration has made or will make, or to even participate in any consultations or negotiations. The time has come to settle accounts, yet the DPJ will refuse to lay down its cards. I think that this will reflect negatively, if anything (I think that the DPJ is down, or nearly so, to its core support), on its poll figures.

The next point of tension will come in autumn, when the time comes to work on tax reform, including the gasoline tax surcharge. Prime Minister Fukuda in his announcement explicitly linked the gasoline tax rate to broader issues like global warming and difficult government finances, as well as the continued need to finance road construction and maintenance. He also raised many uses for the gasoline tax revenue in the context of abolishing the earmark. All this appears to indicate that Mr. Fukuda’s default position is to maintain the surcharge.

It is my belief that the DPJ will be unable to engage in a dialogue at that point. Once the gasoline taxes are disconnected from the road budget and the multiyear development and maintenance plan, there is no way to determine an appropriate gasoline tax rate outside of the context of the overall tax profile. But the DPJ claims that all its campaign and post-campaign promises from funding a basic public pension system solely with government revenues to dropping local government co-payments for national road construction works can be funded without raising taxes while improving the public debt position. There is no way that this position can be incorporated into a meaningful dialogue with the ruling coalition. Thus, I believe that the DPJ will stay out of the tent and hope that the Fukuda administration’s default position on the surcharge plus an early (FY2010, or even 2009?) consumption tax hike to fund the pension system will discredit the ruling coalition in the eyes of the public.

Which way will the public turn? It’s hard to guess because I believe that much will depend on how forthrightly and forcefully the Fukuda administration is able to push its case. The polls say that the majority of the voters want the surcharge to end, yet it was never an issue during the last ten years of its existence at current levels. In other words, it is an issue that only presents itself as the surcharge is set to expire, but it is being exacerbated because of the waste and corruption surrounding the expenditures. On the larger issue of the consumption tax rate, the public in the past has shown itself to be more or less reconciled to an eventual hike to narrow public financing gaps, but the distrust in government has forced the ruling coalition to take the issue off the table for the last couple of years.

So there’s a credibility issue that the Fukuda administration must address in its battle against vested interests, which in turn will be played out against the background of opinion polls, media voices, and the Greek chorus of the DPJ. But if push comes to shove with the road tribe in his attempt to carve out a significant chunk of that road money for the general budget, will he be willing to do what Mr. Koizumi did, and threaten to kick dissenters out, to call a snap election if necessary? The DPJ is sitting in the opposite corner on this one, crying for more, instead of less as in the case of Mr. Koizumi’s Post Office privatization, but the internal dynamics are the same. It is not in the nature of Mr. Fukuda to seek that kind of confrontation, but he will have no choice but to wield the Prime Minister’s nuclear option if he becomes trapped in the middle ground between vested interests and the opposition without the votes to force a supermajority override around this time, in 2009 March.

* The DPJ appears to have learned its lesson on this one and quietly allowed Satoshi Tani to be reappointed as Governor of the National Personnel Agency. The DPJ had opposed his initial appointment in 2004.