Noda Says Deal Possible With Japan’s Opposition to Double Consumption Tax

Japanese Prime Minister Yoshihiko Noda reiterated yesterday the need to trim the scale of government to win public support for doubling the nation’s 5 percent consumption tax.

“This is the first step to a politics considerate of future generations, from one valid only for the present,” Noda said in an interview on Nippon Television last night. He also pledged support for more reconstruction efforts in areas hit by last year’s earthquake, tsunami and nuclear crisis.

Japan’s sixth prime minister in five years is pushing pay cuts and a thinning of the bureaucracy and legislature to make a tax increase more palatable. Noda said earlier he thinks a deal is possible with the opposition on raising the tax to shore up the social security system. “I believe we can come to an understanding,” he told journalists in Tokyo on March 3.

An aging society and a declining birthrate have put Japan in an “unprecedented situation” as the government seeks to rein in soaring welfare costs, Noda said. Political parties all recognize the urgency and must cooperate “to secure stable financing for a sustainable social security system.”

Noda, 54, took office in September, tasked with reviving an economy burdened by the world’s largest debt and recovering from last March’s disaster. His popularity has plunged amid resistance to his tax plan both from within his Democratic Party of Japan and an opposition demanding new elections.

‘Just Very Difficult’

“It’s not impossible to reach a deal, just very difficult,” said Jeff Kingston, a professor of Japanese politics at Temple University’s Tokyo campus. “Noda has to do something to improve the DPJ’s prospects.”

The world’s third-largest economy is showing signs of rebounding from a contraction last quarter. Reports last week showed industrial production and retail sales exceeded analysts’ forecasts in January.

Japanese exports may get a lift from the yen’s 7.9 percent decline since marking a postwar high in October. The currency in February had its steepest drop in two years after the Bank of Japan (8301) set an inflation goal of 1 percent and added 10 trillion yen ($124 billion) to the economy.

Failure to reach a compromise on the sales tax threatens to push up bond yields, eroding the government’s ability to finance its debt burden with the world’s second-lowest borrowing costs. The yield on Japan’s 10-year bond rose one basis point on March 2 to 0.985 percent, the highest since Feb. 10. The yen fell to a nine-month low of 81.81 per dollar.

Photographer: Kiyoshi Ota/Bloomberg

Yoshihiko Noda, Japan's prime minister. Close

Yoshihiko Noda, Japan's prime minister.

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Photographer: Kiyoshi Ota/Bloomberg

Yoshihiko Noda, Japan's prime minister.

Election ‘Best’

Sadakazu Tanigaki, head of the main opposition Liberal Democratic Party, said on NHK Television March 2 that “it would be best” for Noda to seek a new mandate before submitting his tax legislation. He denied media reports that he and Noda met on Feb. 25 to discuss the situation.

Given that it was the LDP that floated raising the consumption tax when it was in power, the prime minister’s persistence has “got them in sort of an awkward position,” Temple’s Kingston said.

Forty percent of voters oppose Noda’s tax plan, compared with 46 percent who support it, according to an Asahi newspaper poll published Feb. 14. Noda’s approval rating fell to 27 percent from 29 percent the previous month. The paper provided no margin of error for its survey of 1,741 people on Feb. 11-12.

Quake Recovery

Noda on March 3 cited progress in rebuilding from the March 11 record earthquake and tsunami that devastated Japan’s northeast, leaving almost 20,000 dead or missing and causing meltdowns at three reactors of Tokyo Electric Power Co.’s Fukushima power plant.

“Infrastructure and the economy in the disaster areas are steadily recovering and supply chains for manufacturing have recovered completely,” Noda said. “Mining and manufacturing output has returned to above pre-disaster levels.”

Public concern that radiation from the plant contaminated the mountains of rubble left by the natural disaster have blocked disposal. Noda said last night the government will subsidize repository sites and conduct checks to insure the safety of nearby communities.

Only two of Japan’s 54 nuclear power reactors are operating as the facilities undergo stress tests to ensure their safety, raising the prospect of power shortages during Japan’s summer.

Modest Background

A first-generation politician whose grandparents were farmers, Noda is the least prosperous premier since the government in 1989 began disclosing assets of cabinet members. He is the first prime minister to graduate from the Matsushita Institute of Government and Management, established by the founder of what is now Panasonic Corp. (6752) to mold Japanese leaders through policy study, factory work and Zen meditation.

Noda has declined to say whether anyone should be held criminally responsible for the consequences of the Fukushima disaster, saying there was plenty of blame to go around.

“In hindsight, the government, the operator and academics were all too steeped in a myth of safety,” he said. “Everyone must share the pain of responsibility.”

One lesson everyone should draw from the experience is to prepare for all eventualities, he said. “We can no longer use the excuse that something is unpredictable and beyond our imagination.”

To contact the reporter on this story: John Brinsley in Tokyo at jbrinsley@bloomberg.net; Yusuke Miyazawa in Tokyo at ymiyazawa3@bloomberg.net

To contact the editor responsible for this story: Peter Hirschberg at phirschberg@bloomberg.net

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