Consumption Tax Bill Repercussions Have Just Begun

As we all know, the last phase of deliberations over the consumption tax bill took place on August 8, at a meeting between Prime Minister Noda Yoshihiko of the Democratic Party of Japan and Tanigaki Sadakazu, leader of the opposition Liberal Democratic Party.(*1) It was then that Noda promised Tanigaki that he would dissolve the lower house and call a general election “soon,” persuading Tanigaki to agree to end his party’s attacks on government policy on this issue. The situation is virtually a carbon copy of another meeting that happened nearly 20 years ago. In January 1994, Prime Minister Hosokawa Morihiro met with the LDP leader Kōno Yōhei to discuss an electoral reform bill. Although the bill had been passed by the House of Representatives, it was on the verge of being rejected after a faction of the Japan Socialist Party (part of the ruling coalition at the time) rebelled during a vote in a plenary session of the House of Councillors. The meeting between Hosokawa and Kōno was an attempt to find a way to break the deadlock. In the end, compromises were made and the current electoral system of single seat constituencies combined with proportional representation was put in place. What makes the resemblance to this year’s consumption tax bill so striking is that on both occasions the bills were passed after the LDP agreed to cooperate with the government as the largest opposition party.

Destructive Aftermath of the Bill’s Passing

Now the focus has shifted to the political developments likely to unfold after the bill becomes law. Back in 1994, the Hosokawa government ironically lost its unifying power after the electoral reform passed into law. Eight parties came together to pass the reform. After the bill was successfully passed, however, the principal reason for this unity vanished, and the Hosokawa government fell apart just three months later, in April 1994. You could say that this was an inevitable fate of such a patchwork government. But if the LDP had not extended a helping hand, the coalition would not have lost its purpose and it is highly probable that it would have continued in office for some time.

So how does this compare to the current consumption tax legislation? If anything, the current bill has even greater potential as a destructive force than the electoral reform bill. The process of pushing the bill through is causing tectonic power shifts in all the major parties.

Noda first announced his intension to increase the rate of the consumption tax at the G20 summit at Cannes in November, 2011, making an international pledge of a hike to around 10% by the middle of this decade. To the traveling press contingent he outlined a schedule up to the next general election, which he said would take place after the bill had been passed, but before it came into effect.

The statement in Cannes came only two months after Noda took office as prime minister. Not surprisingly, there were objections from within the party. Ever since, Noda has had to contend with a succession of political revolts and a fierce leadership struggle against former party president Ozawa Ichirō and others. Things kicked off at the end of last year when a draft containing the fundamental principles of the bill was discussed within the party. Nine party members were so opposed that they quit the DPJ in the New Year and formed the new Kizuna Party. This marked the beginning of the DPJ’s dissolution.

Noda: Sending Out an SOS

Then at the end of March this year, just before the cabinet decision on the consumption tax bill, the leader of the People’s New Party, Kamei Shizuka, announced his party’s intention to separate from the DPJ-led coalition that took office in 2009. As it happened, the majority of his party disagreed with him and Kamei was ousted from his party. The People’s New Party chose to remain in the coalition without him, but these events altered the character of the coalition. Ozawa took advantage of this moment to instruct his cohort of Diet members to resign their government posts in government, bringing his confrontation with the prime minister to the point of no return.

At this point, the vote on the consumption tax bill effectively became a vote of confidence in the government. Considering that the House of Councillors election in 2010 had produced a “divided Diet,” Noda was left with no choice but to send an SOS to the opposition LDP. Acting as intermediary was the Ministry of Finance, which was desperate for the tax hike to pull through and pulled all its strings to make the talks a success. Tanigaki’s background in the ministry was no doubt a major factor here. The prime minister also had significant support from a number of influential figures, including: former prime minister Mori Yoshirō; Aoki Mikio, formerly the LDP’s leader in the House of Councillors; and the party’s former secretary general Koga Makoto.

The DPJ, the LDP, and the New Kōmeitō thus managed to come to reach the three-party agreement that Ozawa had scornfully dismissed as impossible. The government’s amended proposal was submitted to a vote in the House or Representatives plenary session on June 26. For Ozawa, there was no turning back. A considerable number of rebellious Diet members, including former Prime Minister Hatoyama Yukio, joined forces with him to oppose Noda and the consumption tax hike. A total of 57 DPJ members voted against the bill. A further 16 either abstained or were absent, including the former minister of internal affairs and communications, Haraguchi Kazuhiro. The revolt then extended from the lower house into the House of Councillors, where a succession of members left the party. Since the coalition was formed, 82 Diet members have either left the DPJ or resigned from office. Ozawa put together a new party called People’s Life First (the name a reference to a pledge that featured prominently in DPJ campaigning in the lead-up to the general election in 2009) and a number of other small groupings have appeared. Even within the party, there are still a number of disgruntled members who may still decide to leave. These might be described as “reserves” for the growing group of rebels. It would be little exaggeration to say that the passing of the consumption tax bill has been accompanied by the dissolution of the DPJ that took power in 2009.

A Conservative Revival

What about the LDP? Although the party has clearly benefited from the divisions in the DPJ, it has not emerged unscathed by the upheaval either. The individuals who spearheaded the three-party agreement were all party members who have been without real power within the party since the Koizumi years, and who have had to content themselves with a position outside the party mainstream. As this suggests, there has been a shift of power within the LDP as well. With the revival of this older faction a more conservative group inside the LDP, including former Prime Minister Abe Shinzō, is likely to oppose the three-party consensus. When the People’s Life First Party and other smaller parties submitted a vote of no confidence, seven LDP Diet members defied instructions from the party leadership to miss the vote. These seven members attended the session and voted against the government. The most obvious thing uniting these rebels was that they were all supporters of Abe during his time as prime minister. Nakagawa Hidenao was secretary general of the LDP, Shiozaki Yasuhisa was chief cabinet secretary, and Suga Yoshihide was minister of internal affairs and communications. Koizumi’s son, Shinjirō, was also among the rebels. These developments were part of the background to Suga’s support for Abe in the LDP leadership elections in September.(*2)

With the electoral reform bill in 1994, the drama of LDP fragmentation was followed by the movement that led to the establishment of the Hosokawa coalition. This time around, the controversy surrounding the consumption tax bill has caused deep fissures in both the government and opposition parties. Across the entire political spectrum, parties are splintering and collapsing into factionalism. On top of this is the rise of a new political force in the form of Hashimoto Tōru and his Osaka Restoration Association.(*3) There is no sign of any political cohesion or convergence on the horizon. The political repercussions of the consumption tax hike have only just begun.

(Originally written in Japanese on August 19, 2012.)