Sunday, August 05, 2012

Expect Some Smoke, but Not Much Fire, When Legislators Go Back to Work

The hard-copy Yomiuri today essentially claims that an LDP in-house survey showing that it would win 220 seats in a lower house general election, short of the 241 seats necessary for a single party majority but easily trouncing the DPJ, plus anger over Prime Minister Noda’s understandable desire to lay the groundwork to move forward without calling an early snap election has prompted the LDP rank-and-file and local chapters to push the party leaders to demand a promise of an early snap election in exchange for passing the Legislation Bill concerning the Integrated Reform of Social Insurance and Taxation (essentially, the FY2014-2015 consumption tax* hikes, and pushing back the social insurance reform debate another year, not that it really got started in the first place) in the upper house, making it law. The LDP, like the DPJ, certainly does conduct internal seat-by-seat surveys in anticipation of an election and the poll numbers certainly do give credibility to its purported assessment, so let’s take the prospects of a significant plurality as a driver of the LDP near-term behavior as a given. The mention of the local chapters is also meaningful, because they are to the LDP what the Sokagakkai is to Komeito, the local political machines are to the LDP, and its one clear institutional advantage over the DPJ. The local chapters are not to be taken lightly.

However, it’s still unclear what the LDP can do to force an early snap election just now; the consumption tax hikes won’t kick in until April 2014 anyway. Media reports do mention a lower house vote of no-confidence—the doomsday option: if passed, the cabinet must resign or call a snap election—and an upper house censure motion—the chicken race option: if passed, the opposition claims the moral high ground and goes on strike until a) the government accedes to its demands or b) the opposition is forced to go back to legislative work by the media and popular opinion. I’m betting that the LDP leadership will take a prospective offer from the DPJ—fingers crossed—to vote on the reform bill on 10 August (Fri) instead of 20 (but not 8 (Wed), as the LDP is demanding) to refrain from pressing either motions this week, then sit on its hands on every government bill that does not have “humanitarian needs” written all over it until the threat of the government running out of money becomes imminent, at which point Noda has no choice but to call a snap election as quid pro quo for passing the deficit bonds authorization bill. Besides, Komeito is unlikely to go along with either motion until the reform bill is over and done with.

Once the bill is passed, though, the LDP and Komeito will make a move—if they think that it can get either motion passed. For now, seven other opposition parties, who have most of the remainder—68 seats**—between them, have agreed to introduce their own no-confidence motion on 7 August (Tue). This is actually a negative for the LDP (and Komeito). They cannot vote for it, since it is essentially an anti-consumption tax resolution. The seven in turn will take some convincing to allow the LDP and Komeito to take the lead on a subsequent motion. I think that this going to buy some time for the Noda administration. Note that this is not necessarily a good thing for the DPJ. The Noda administration will feel compelled to compromise to keep potential defectors onside, which means that there will be a corresponding deficit in cohesion, coherence, and clarity as far as its policy messages are concerned.

* I’m not naming names, but I’ve been trying, so far without success, to convince my friends and acquaintances at two media groups to stop calling it a “sales tax.” In the outside chance that you’re reading this, guys, once again, the consumption tax is a value-added tax, not a sales tax.

** In case you’re curious: People’s Life First 38 (including one jointly-caucusing independent), Kizuna Party nine (early anti-tax hike defectors from DPJ), Japan Communist Party nine, Social Democratic Party six, Your Party five (center-right neoliberals), New Party Nippon one (social democrats), New Renaissance Party zero (this is not a typo).


Brian B. said...

Could you explain the difference between the Japanese consumption tax and a sales tax?

Jun Okumura said...

Maybe I’m being a little too rigid here when I make a mutually exclusive distinction between VAT and the sales tax, because by one measure the VAT is a sales tax broadly defined and the two can be configured to effect similar economic consequences. However, VAT is the term for an indirect tax charged on the value added at each stage of manufacturing and distribution while the term sales tax usually refers specifically to a tax that is charged at the point of sale to the consumer. This is a useful distinction to make since very different mechanisms are required to administer reduced rates for essential goods and exemptions for exports, and small business exemptions are almost impossible (in my view) to design for the sale tax.

Incidentally, I find it interesting that Wikipedia reflects this ambiguity in its explanation of these two terms:

From Sales tax: Types of sales tax
“A conventional or retail sales tax is charged only on the sale of an item to its final end user.
Other types of sales taxes, or similar taxes, include:
Value added taxes…”

From Value added tax:
“A VAT…differs from the sales tax in that, with the latter, the tax is collected and remitted to the government only once, at the point of purchase by the end consumer.”