Tax hike talk from Japan’s new leader could weaken ruling party in weekend elections

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Tax hike talk dominates Japan’s weekend election

TOKYO — Proposing a tax hike is normally a sure way to lose an election.

Yet Japanese Prime Minister Naoto Kan insists that’s just what the country needs to do to rein in its bulging national debt.

In office just a month after his predecessor abruptly resigned, Kan has put repairing the country’s strained finances at the center of the campaign for this Sunday’s parliamentary elections.

The polls, in which half the seats in the 242-member upper house are up for grabs, is viewed as a referendum on the Democratic Party’s 10 months in power since defeating the long-ruling conservative Liberal Democratic Party. The Democrats have promised to cut wasteful spending and bring greater transparency to politics, but have had a mixed record in achieving that so far.

A social progressive and fiscal hawk, Kan has declared that Japan needs to reform its tax structure and should seriously consider raising the sales tax from 5 percent to 10 percent within two to three years. He has warned if Japan doesn’t take dramatic steps soon, it could face a similar crisis to Greece — a comparison experts say is an exaggeration.

“What can we do to prevent a situation like Greece? We must slash wasteful spending, while promoting growth,” Kan said recently. “But we also need to discuss the overall tax system. That’s the context of our proposal.”

Kan appears to be betting that many Japanese voters are resigned to higher taxes as the country’s population shrinks and ages and its public deficit grows to twice its gross domestic product.

But his gamble may end up hurting the Democrats’ chances Sunday as his Cabinet’s initially high approval ratings have rapidly declined with all the tax talk.

“Kan felt this wouldn’t be a point of contention, but he didn’t take it seriously enough,” said Naoto Nonaka, a professor of political science at Gakushuin University in Tokyo. “There’s an order to doing these things, and this sales tax thing came out of the blue.”

This weekend’s election almost certainly won’t threaten the Democrats’ grip on power since it controls the more powerful lower house of parliament that chooses the prime minister.

But poor results could undermine the party’s attempts to pass legislation and could affect the course of governing for the next three years, until the next elections must be called.

Many analysts are predicting the Democrats, along with their tiny coalition partner, the People’s New Party, will fail to keep their slim majority of 122 in the upper house, forcing them to forge ties with other partners.

Kan, whose seat is in the lower house, has set a target of hanging on to the Democrats’ 54 contested seats, but pundits say even that will be difficult given his sinking poll ratings.

Aside from truly abysmal results, Kan’s job is most likely safe as the Democrats want to maintain some semblance of continuity after Japan has seen five new prime ministers in the past four years.

The main opposition party, the Liberal Democratic Party, a pro-business party that ruled Japan for most of the post-World War II period, is projected to pick up about five seats to raise their total to 75. The party has aggressively bought ads shown during World Cup matches.

An upstart party made up of recent Liberal Democratic Party defectors called Your Party is predicted to win eight to 10 seats. A proponent of smaller government and reining in the bureaucrats, the group could become a potential coalition partner for the Democrats, analysts say.

Kan has shown some political shrewdness in tackling the tax issue by saying the government should seriously study an earlier proposal by the Liberal Democrats to raise the sales tax to 10 percent, effectively neutralizing opposition from the conservatives. Other political parties are divided on the prospect of higher taxes.

Winning an election on pledges to raise taxes is not without precedent in Japan.

In 1996, then-Prime Minister Ryutaro Hashimoto led the Liberal Democratic Party to victory in lower house polls amid proposals to lift the sales tax to 5 percent from 3 percent.

In their short tenure so far, the Democrats have a mixed record.

They came to power in last August’s lower house elections during a time of high hopes for change. Their attempts to cut costs through public budget screenings, where parliamentarians grilled bureaucrats about spending proposals, was a big hit with the public.

But the previous prime minister, Yukio Hatoyama, disappointed many with his failure to keep a campaign promise to move a U.S. Marine base off the island of Okinawa and for getting mixed up in a funding scandal. The Democrats have also been slow to deliver on pledges to make expressways toll-free, making some voters think the party is all talk and no action.

After the fiasco created by Hatoyama over U.S. Marine Corps Air Station Futenma, Kan has said he will honor an agreement with Washington to move the base to a less crowded part of northern Okinawa despite fierce local opposition.

Associated Press Writer Mari Yamaguchi contributed to this report.