Japan faces political trench warfare over consumption tax

Author: Aurelia George Mulgan, UNSW, Canberra

The political trench warfare in Japan over increasing the consumption tax has taken on the appearance of a ‘final battle’ between Prime Minister Yoshihiko Noda and party strongman Ichiro Ozawa.

Noda and Ozawa are said to be playing a game of ‘Russian roulette’, but the reality is much more akin to brinksmanship, where only one victor can emerge.

The strength of Noda’s commitment to raising the consumption tax is not in doubt. In fact, as the political obstacles have compounded, Noda’s determination has redoubled to match. For Ozawa, the issue is more complicated: it is primarily a political, not a policy battle. He was once an advocate of consumption-tax increases, but he now gives the standard reasons for objecting to a tax hike at this time — a slow economy and Japan’s level of deflation, among others. His ‘growth strategy’, so called for economic respectability, is to increase (pork barrel) spending on various restoration and revival projects.

Ozawa’s current opposition is being driven by a number of key political considerations. First and foremost, the consumption-tax issue is Ozawa’s principal tool to bring down Noda’s government. Ozawa does not want Noda to be successful because this will block his own return to power. Noda has staked his political future on the legislation’s successful passage, which would provide him with a strong basis for retaining the party leadership in the September presidential election.

Second, Ozawa wants to highlight his own standing in the party due to fears that the current court case over his alleged violation of the Political Funds Control Law may considerably diminish his influence.

Third, battling the government over a prominent policy issue provides a cause around which Ozawa can rally his troops within the party. Younger members have been publicly expressing their dissatisfaction with the ‘reversal of largesse’ that now requires them to pay membership fees to the Ozawa group and the fact that Ozawa is no longer readily distributing funds to members. These complaints are behind the speculation in Tokyo that Ozawa has money in stocks but not a lot of cash that he can circulate.

Fourth is Ozawa’s ‘elections first’ principle. Ozawa is aware that his group faces annihilation in any future lower house election, and a consumption-tax increase will simply seal their collective electoral demise. In particular, it will sound the death knell for the many first- and second-term Diet members with feeble electoral support bases — the majority of his group. Ozawa faces the prospect of a massive reduction in the size of his faction and therefore a substantial decline in his intra-party influence. He has acknowledged this situation, saying: ‘If we face an election the group will be stamped out’. He individually counselled each of the young Diet members in his group in late January, drawing on the results of research that the Democratic Party of Japan (DPJ) had conducted on the electoral situation in each district. He outlined to each the chances of winning in their electorate — with the majority paling at the news.

Ozawa is hoping to once again seize the initiative within the party if he is found ‘not guilty’, with the court’s verdict due to be announced on 26 April. He is counting on DPJ Secretary-General Azuma Koshiishi engineering a restoration of his party membership after the verdict, a position from which he might return to the post of secretary-general — allowing him once more to take control of the party’s money. This would restore his financial as well as his political fortunes, paving the way either for a party leadership bid in September or a victory by someone he could control.

Even Noda, who was initially very conciliatory toward Ozawa, has now had enough. He submitted his consumption tax proposal to ‘prior scrutiny’ (jizen shinsa) by the party in an attempt to reach a consensus, but the intra-party debate just provided a platform for Ozawa’s supporters to use ever-more extreme tactics to block it. This has driven Noda into the arms of the opposition with greater speed and alacrity than he might have contemplated earlier. Cooperation with the opposition Liberal Democratic Party (LDP) is mandatory if the consumption-tax legislation is to pass the upper house, but it may now even be necessary if the law is to pass the lower house, because of the Ozawa group’s collective revolt. More than 30 members of the DPJ have resigned from their posts in the party including four from the Ozawa group who have quit their sub-cabinet positions in protest against the Noda cabinet’s continued action to pass the consumption-tax bill. Around a dozen have left the DPJ altogether. It will only take opposition from 53 people in the DPJ for the tax legislation to fail in the lower house.

A ‘grand coalition’ of the DPJ and the opposition LDP may be undertaken on the condition (already raised by LDP Secretary-General Nobuteru Ishihara) that the DPJ ditches the Ozawa group. From Ozawa’s perspective, this course of action has to be stopped at all cost, hence his campaign to bring down the Noda cabinet as soon as possible, including hints that he will support an opposition party no-confidence motion.

It is impossible to predict how this confused situation in Japanese politics will play out. The LDP may continue to opt for obstruction rather than cooperation, elements of the DPJ leadership may get cold feet on the introduction of the consumption tax bill to the Diet and the Ozawa group may switch their attention to the opposing the TPP ahead of Noda’s visit to the United States on 29 April. The next roll of the dice will be on 26 April, when the verdict of Ozawa’s trial is announced.

Aurelia George Mulgan is Professor at the University of New South Wales, Australian Defence Force Academy, Canberra.