When the LDP(Liberal Democratic Party)'s rule which seemed a permanent feature of Japanese politics was toppled and the Democratic Government came into being in September 2009, one of the pledges they made was not to increase the present 5% consumption tax for their term. However, their Prime Minister, already the second one, is openly talking of the tax rise, and it is assumed that the new Economic Minister, appointed on 14 January, will be the man to be in charge. This alone would show that the distance between the two major parties has come to nothing as the Minister in question was long known as an LDP brains trust for economic affairs. He is for a hike in the rate by 5%. A business association, in its New Year message, has proposed a hike to 10% first, and then to 17%.
Nowadays it is common in a serious debate on Asian economy to bypass Japan, paying more attention to the 'Rising China' or 'Emerging India', or to ASEAN. It need not be so, as Japan is still capable of higher growth, and that not simply in macro-economic terms but with a human face. But why has Japan sunk so much?
It is mainly due to the continued downward trend in wages. It is not a natural phenomenon, or to be attributed to external factors. The drop in wages was recorded since the mid-90s, when the business associations put pressure on the then LDP government to deregulate the statutory conditions of employing the workforce. As the result there was a sharp increase in the ratio of the irregular workers, with unstable status and lower income, in the workforce. Now it is over one third of the total, and their existence naturally has adversely affected the status, working hours, and pay of the regular employees as well. The average wage has been reduced by a little over Yen half a million, roughly one eighth, from 1999 to 2009. During the same period, the number of those with more than Yen 20 million, or up to Yen 3 million of annual income, has increased, and the number with income in between, more than 3 and up to 20 million, the solid core of the workforce of the country, has been shrinking. It is difficult for a man to live a decent life on Yen 3 million, let alone a family, and this will explain the decreasing marriage ratio among the young, and many things more. Before 2006 poverty as such was hardly an issue, but it has become common since then to talk of not just disparities but poverty, particularly the 'working poor', meaning no matter how hard and long a man may work he will remain poor. Many of those who are poor are no longer working as it has become so difficult to find work these days. Governments come and go, but there has been little attempt to stem the tide. The present PM has said in his important speech that the policy emphasis was employment first, employment second, and employment third, but little evidence is there to show that it has been pursued with any sincerity, diligence and far-sightedness.
Several factors have worsened the situation. The income tax has become increasingly retrogressive, from the maximum 70% in 1986 to the present 40%. The consumption tax was introduced in 1989 at 3%, but was raised to 5% in 1997. Moreover, it was combined with cuts in corporation tax, and the total amount collected up to March 2010 roughly equalled the accumulated cuts in the latter, benefitting only the rich. The banks now take the deposit, even the fixed deposit, at almost zero interest, thus pocketing huge amount the accumulated figure of which would equal half of Japan's annual GDP. All these have consistently curtailed the disposable income of the great mass of the people. As the result, the automobile industry, for example, are producing as many vehicles abroad as in the country and at the same time exporting half of the domestically produced ones, being unable to sell. If all those people-unfriendly measures could be reversed, putting the greatest priority on stable employment and decent wages, thus expanding the home market, Japan's economy will come out of the two decade-long deep tunnel, still without a light ahead, and register even a double-digit growth with all its effects in the country and outside. It would increase natural inflow of income tax as well, offsetting the need for a consumption tax hike and, ultimately, the tax itself!
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