Tuesday, June 22, 2010

Kan he get Japan's budget in shape?

I first apologize for the horrible pun in the title.

Japan is showing some signs of growth again, even though it's small. The budget is still a problem, though, and one thing PM Kan is considering the LDP's suggestion to increase in the consumption tax, from 5% to 10%, over the next few years. He's also talking about a balanced budget by 2020.

Compare this to Mr. Osborne's bumping the UK's VAT to 20%, up from 17.5%.

Apart from the oddity of the major political parties suggesting a tax INCREASE just before an election (which really does underscore the depth of the problem), it's worth noting that Mr. Kan has proposed this as his cabinet's popularity is slipping.

Mr. Kan is in a very tough spot, but I hope that he sticks to his guns and lays the groundwork for future responsible fiscal policies. Even if he suffers politically, history will be far kinder if he can get Japan on the right track.

Perhaps the timing of Mr. Kan's accession to the Prime Ministership will work in his favor, though. Elections are looming and the DPJ has lost a lot of public goodwill. The churn in Prime Ministers in Japan (including Mr. Kan, there have been five since Mr. Koizumi left office in 2006, though all but Mr. Hatoyama have lasted right around a full year; Mr. Koizumi, by contrast, was in office for over five years) indicates a general failure of leadership and concomitant lack of public confidence in both the LDP and DPJ (even though the PM is selected by the ruling party, public sentiment is very important). Mr. Kan may not have much of a future in office no matter what.

Thanks to this, he may well feel free to bite the bullet and make the hard choices that must be made. In the immortal words of Kris Kristofferson and Fred Foster, freedom's just another word for nothing left to lose (Janis Joplin's version of the song was far and away the best, by the way). Mr. Kan may well be supremely free to act.

There is of course the concern that raising taxes could cause growth to stall. This is a legitimate worry, and a reason to implement a tax increase gradually. It is heartening to note that Mr. Jimi is taking a sensible departure from his predecessor's preference for yet more spending to stimulate growth. It is also heartening that he is taking the position that postal funds should not be directed toward risky overseas ventures. At this point, Japan can ill-afford a crisis generated by unwise use of Japan Post savings funds.

I encourage Prime Minister Kan to press forward with the hard choices and keep Japan on the road to sensible fiscal policy.

(All linked articles were accessed on 22 Jun 2010. They are subject to change without notice, and the links may eventually break. Paragraph on taxation vs. growth concerns added after the article was published. Due to time zone differences, some articles may have a publication date of 23 Jun 2010; they were accessed on 22 Jun 2010 in the Mountain time zone, GMT -6 due to DST.)

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