Abe, Koike Set Economic Battle Lines on Tax, Nuclear Power

  • Their differences are less stark on the BOJ and curbing debt
  • Security risks could steal some focus for Oct. 22 election

WisdomTree Sees Political Metabolism in Japan

As Prime Minister Shinzo Abe’s Liberal Democratic Party and Yuriko Koike’s emergent Party of Hope shape up to contest a Japanese national election this month, the two conservative forces are staking out key points of difference on taxes and nuclear power.

While provocations from North Korea mean security issues will also weigh heavily on voters, popular concern about stagnant wages, strained household budgets and the country’s swelling welfare burden are likely to keep the economy high on the agenda.

Abe, who can point to an economic recovery that’s already notched up six quarters of growth, looks set to emphasize prudence on going ahead with a sales-tax hike and foresight in funneling a big chunk of the revenue into education. Koike can counter that the last increase in the levy pushed Japan into recession and that it should be postponed again.

Here’s how the LDP, PoH and Abe’s coalition partner, Komeito, compare on the economic platforms they’ve put forward over the past week.

Sales Tax

  • The LDP has vowed to go ahead with an increase in the sales tax rate by 2 percentage points to 10 percent in October 2019. It’s earmarked about half of the revenue for education and social spending, and the other half to help cover Japan’s deficit.
  • Komeito supports the tax hike, but will push for reduced rates for certain items like food.
  • Koike’s PoH wants to freeze the tax rate at 8 percent for the time being, citing the need to ensure the economic recovery continues. When the levy was last raised in 2014, from 5 percent, consumption slumped and gross domestic product contracted for two quarters.

Corporate Taxes

  • PoH wants to examine a potential tax on the cash reserves of large companies to funnel some of this money back into society. While big corporations have reported record profits during Abe’s time in government, they’ve been reluctant to put this money into wages and investment.
  • Abe’s deputy, Finance Minister Taro Aso, has repeatedly complained about companies piling up cash reserves and not investing. But the LDP hasn’t put forward any plans to tax this money.

    Shinzo Abe and Yuriko Koike during a debate on Oct. 8.

    Photographer: Akio Kon/Bloomberg

Nuclear Power

  • The LDP sees it as an economic necessity to restart nuclear power plants that were shutdown in the aftermath of the Fukushima meltdown in 2011, though it does seek to curb dependence on nuclear energy.
  • Komeito also supports some restarts for now, but wants to push harder to expand the use of other energy sources and it ultimately seeks to move away from nuclear power.
  • PoH wants to eliminate nuclear from Japan’s energy mix by 2030, chiefly out of concern for safety and the environment.

Monetary Policy

  • The Bank of Japan’s monetary policy, which was front-and-center of Abe’s economic sales campaign when he came to power to December 2012, doesn’t get any mention in the LDP’s manifesto for the Oct. 22 election. With the BOJ seemingly years away from its 2 percent inflation target and its controversial stimulus program still in place, Abe appears intent on steering clear of the area.
  • PoH has signaled the need to exit from the current policy, but gradually and not yet. This may allow Koike to tap into disaffection with the BOJ, particularly the central bank’s negative-rate policy, while also soothing any worries about an abrupt change that could shock the financial system. In an interview, Koike said that a sudden change in the BOJ’s policy would be "not good," and that the exit strategy "must be conducted with great care."

Fiscal Consolidation

  • The LDP and PoH both support working toward a primary balance surplus, a key yardstick for bringing debt under control that weighs total government spending, minus interest payments on borrowing, against tax receipts.
  • But the LDP has let its goal slip of achieving this by fiscal 2020 and hasn’t provided a new time frame. PoH said it will set a more realistic timetable, but didn’t offer any date.

Education and Income Support

  • The LDP aims to use the sales-tax bump to fund free pre-school for children ages 3 to 5, and free child care for those under age 2 for low-income families.
  • Koike’s PoH has no counter to this offer, but has flagged the idea of introducing a "basic income" to help the poor, though it didn’t provide any details.

Slogonomics

  • Not to be outdone by the prime minister’s "Abenomics" slogan, Koike’s party appropriated "Yurinomics" to describe its economic platform.
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