Tax reform hands Japan's ruling party a telltale defeat

It has been a quarter-century since the very conservative voters of Iwate Prefecture elected a Socialist to the upper house of Japan's parliament. So when they did so in a by-election on Sunday - and by a historic margin - the result was a great shock for the ruling Liberal Democratic Party (LDP).

The Socialist victory is widely viewed as a referendum on the unpopular and controversial tax reform that Prime Minister Yasuhiro Nakasone and his party are seeking to legislate.

``There is no denying that the sales tax has affected [the election],'' said party leader Shintaro Abe, a possible successor to Mr. Nakasone.

The tax plan, which reduces corporate and individual taxes while introducing a new sales tax, is Japan's central political issue. The opposition parties have seized upon the issue, accusing Nakasone of having lied during last summer's election when he pledged not to introduce a large-scale indirect tax. They have blocked the parliamentary proceedings on the budget in protest over the tax scheme.

The Iwate election, analysts here say, is a possible bellwether of the outcome of nationwide local elections to be held in April. If the opposition can repeat the pattern, the LDP, and Nakasone personally, will be under great pressure to significantly revise the tax plan. Behind this lies the issue of Nakasone's future. His term expires Oct. 31, but many observers believe he will try to stay on. He has pledged to push through tax reform as one measure needed to reshape Japan. Failure, analysts say, will likely force him from office by this summer.

The election was an unusual display of effective politics from the normally feckless opposition parties. All the parties - except the Communists - united behind veteran Socialist politician Jinichi Ogawa and mobilized a nationwide campaign focused entirely on the tax issue. Mr. Ogawa's opponent was Rei Isurugi, the widow of the LDP politician whose death created the vacant seat. Japanese voters, particularly in rural and semi-rural areas, can normally be expected to deliver a sympathy vote for the widow.

What disturbs the ruling party is the large-scale desertion of hard-core supporters over the tax issue. Iwate is a classic conservative stronghold. The combination of farmers, small shopkeepers, and white-collar workers, making up the majority of voters can usually be counted on to vote overwhelmingly for the LDP.

In Iwate, and all over Japan, businessmen and retailers who fear the impact of a sales tax on consumer spending have been vocally joining hands with the opposition campaign. Eight of ten chambers of commerce in the prefecture, normally stalwart LDP supporters, passed resolutions opposing the tax plan. Analysts estimate that about 100,000 votes from small retailers and their families switched to the Socialist column.

The results provide a sharp contrast with last summer's contest, when the LDP candidate defeated his Socialist opponent by 310,000 to 170,000 votes. This time, Ogawa garnered 421,432 to the LDP's 197,863.

Some analysts caution that local factors, such as the weakness of Mrs. Isurugi's candidacy, also affected the outcome. ``It would be premature to conclude that the only reason the LDP was defeated is tax reform,'' says one veteran political observer.