In Japan, sales tax increase advances in parliament despite ruling party rift

(KAZUHIRO NOGI/ AFP/GETTY IMAGES ) - Former Democratic Party of Japan leader Ichiro Ozawa (center left) attends a session of parliament’s lower house on Tuesday when lawmakers voted in favor of doubling sales tax, but a sizeable rebellion by members of the ruling party left Prime Minister Yoshihiko Noda's future in doubt.

(KAZUHIRO NOGI/ AFP/GETTY IMAGES ) - Former Democratic Party of Japan leader Ichiro Ozawa (center left) attends a session of parliament’s lower house on Tuesday when lawmakers voted in favor of doubling sales tax, but a sizeable rebellion by members of the ruling party left Prime Minister Yoshihiko Noda's future in doubt.

SEOUL — With a parliamentary vote Tuesday to double the country’s sales tax, Japan took an important step toward stabilizing its finances and staving off a European-style debt crisis. But the lower house vote also exposed the tenuous position of the prime minister, Yoshihiko Noda, who had championed the controversial increase over objections from his own party.

The higher tax rate is not yet law; the package of bills must still pass the weaker, opposition-controlled upper house in a vote expected next month. Passage is all but guaranteed, though, because Noda has already secured support for the legislation from Japan’s two main opposition parties, the Liberal Democratic Party and New Komeito.

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The threat to Noda comes, instead, from his own Democratic Party of Japan (DPJ), where a rival faction that opposes the tax increase threatens to break away, scuttling the DPJ’s lower-house majority.

For months, Noda has described the tax boost as the centerpiece of his plan to rein in Japan’s debt and fund its ballooning social security costs, though critics fear it will curb consumer spending and handcuff the economy. Now he must focus on the next challenge — holding his party together.

Noda’s chief nemesis is Ichiro Ozawa, a shadowy legislator with a reputation as a kingmaker, who has never been prime minister and instead torments those sitting there. Ozawa commands the loyalty of a bloc of junior lawmakers, who largely vote according to his wishes. Political analysts say they might leave the party if that’s what Ozawa demands.

In Tuesday’s lower house vote, 57 DPJ lawmakers did not back the bill, according to public broadcaster NHK. (Overall, 363 voted for; 96 voted against.) If 54 or more of those “rebels,” as they are often described in Japan’s media, join an Ozawa splinter party, the DPJ will lose its majority coalition in the lower house. Noda will then struggle all the more to pass legislation, and more important, he would be susceptible to a no-confidence vote, which the DPJ could no longer block. That could knock Noda out of the job less than a year after his election, prolonging Japan’s period of revolving-door leadership.

Noda also faces the option of punishing the rebels himself, by either suspending them or expelling them — though the latter option would lead to the same problems as a mass defection. On Tuesday, Noda called it “unfortunate” that members of his party had dissented, but he was vague on how he would respond.

“If [the bill] passes both the lower and upper houses, that would mean Noda will have accomplished something,” said Jun Iio, a political science professor at the National Graduate Institute for Policy Studies. “The problem is his weak base. . . . The situation is tough, and it won’t be easily solved.”

Several of Japan’s major newspapers have reported recently that Ozawa intends to start his own party, perhaps within the next week. But the Kyodo News agency, citing Ozawa’s supporters, reported Tuesday that Ozawa might stay with the party after all.

Once the bill becomes law, Japan’s consumption tax — currently among the world’s lowest — will rise from 5 percent to 8 percent in 2014, then to 10 percent in 2015.

Japan’s government says that the increase will generate $170 billion a year. But that only begins to chip away at the country’s fiscal problems, which include soaring public debt, decades of low growth and little chance for expansion as its population ages.

Japan’s debt stands at 235.8 percent of its gross domestic product, according to the International Monetary Fund, having increased tenfold over the past two decades. The IMF said recently that the tax increase is “crucial to demonstrate a commitment to fiscal reform and sustain investor confidence.” But it also recommended that Japan should push back the retirement age, reduce social security spending and further raise the consumption tax to 15 percent.

Special correspondent Yuki Oda contributed to this report.

 
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