Japan's new prime minister stumbles over consumption tax

In Sunday's upper house parliamentary elections, Japanese voters turned against the ruling Democratic Party of Japan (DPJ). Prime Minister Naoto Kan's plan to double the consumption tax to 10 percent is behind the backlash, say analysts.

By , Correspondent

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    Japanese Prime Minister Naoto Kan arrives for a press conference during ballot counting in the upper house parliamentary elections at the party's election headquarters in Tokyo, July 11.
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Japan faces the prospect of political gridlock after the heavy losses suffered Sunday in upper house elections by the Democratic Party of Japan (DPJ), which has been in power only 10 months, and with a new leader appointed last month.

Having finally ousted the Liberal Democratic Party (LDP) after more than half a century of almost uninterrupted power, the DPJ has now managed to lose one leader and one election before its first year in government is out.

Voters were apparently unhappy with new prime minister Naoto Kan's recently announced proposal to double the consumption tax rate to 10 percent. This despite polls showing a majority of the public say such a measure is inevitable in order to fix the creaking state finances, and it also being the policy of the opposition LDP – Sunday's main electoral beneficiary.

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"I touched on the consumption tax and the public may have felt it came all of a sudden. I also believe that my lack of explanation about it was a big factor," a tired and slightly shaken-looking Mr. Kan told a news conference in the early hours of Monday morning.

After the resignation of former Prime Minister Yukio Hatoyama – over political funding scandals and the issue of relocating a US Marine base on an Okinawa - the DPJ enjoyed a huge surge in popularity when Kan took over; only to see it evaporate again in the weeks leading up to the election.

A new standard of fickleness

After supporting the LDP almost unwaveringly for more than 50 years, the electorate seems to have become extremely fickle, with poll numbers falling and rising dramatically and frequently.

“The Japanese have become single-issue voters, swinging back and forth on just one issue, which this time was the consumption tax,” says Rei Shiratori, president of the Institute for Political Studies in Japan, “I’m concerned whether we can establish a mature democracy in this fashion.”

Japan is still going through a phase of “disalignment and realignment” as it breaks with the postwar status quo, according to Professor Shiratori.

As the election results were confirmed Monday morning, the DPJ emerged with 44 seats to the LDP's 51, though the governing DPJ remains the largest party in the less-powerful upper house due to the system of putting half the legislatures’ seats up for election every three years. The DPJ now holds 106 out of 242 seats. However, the lack of an overall majority means the opposition can now make it difficult for the government to push through its legislative program.

“The Japanese seem to have become like Americans and grown to like gridlock,” says Gerald Curtis, professor of political science at Columbia University and visiting professor at Tokyo’s Waseda University.

S&P warning no debt

Ratings agency Standard & Poor’s (S&P) issued a warning Monday that it could further downgrade its assessment of Japan’s huge national debt in the wake of the DPJ’s defeat and the possibility of political impasse. The agency said in a statement, “A hung parliament would make it very difficult for the government to push through major policies."

S&P reduced its outlook on Japan’s sovereign debt from stable to negative at the beginning of the year. But Japanese markets tend to be less sensitive than those of other countries to such downgrades because more than 90 percent of the debt is domestically held.

Meanwhile, Prime Minister Kan is now faced with turning to some of the newer small parties that gained seats on Sunday to try and form a new coalition. This will inevitably involve compromise, and could further damage Kan’s credibility with voters, who could turn on Kan as quickly as they did on his predecessor.

“And yet there’s no sense of crisis,” suggests Professor Curtis, “People don’t feel that it’s so bad yet, or they would do try and do something.”

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