Thursday, October 5, 2023

Kishida's Political Calculations

Kishida’s Economic Measures Have Political Motivations

By Takuya Nishimura
, Former Editorial Writer for The Hokkaido Shimbun
The views expressed by the author are his own and are not associated with The Hokkaido Shimbun
You can find his blog, J Update here.
October 1, 2023. Special to Asia Policy Point

Suffering from consistently low public support for his administration, Prime Minister Kishida ordered September 25th the preparation of a package of economic measures to relieve inflation and wage growth. Kishida will submit a supplemental budget bill to an extraordinary session of the Diet later this month. He has even referred to a possibility of tax reduction. This announcement has invited speculation about a snap election by the end of this year.

The planned economic measures consist of five pillars: protection from inflation, sustainable wage growth, promotion of domestic investment, overcoming demographic decline, and infrastructure to enhance safety and security. Sustainable wage growth typically receives the most paid attention.

Kishida may also attempt to reform the pension and health insurance system. Embedded in the system is the so-called “wall of ¥1.3 million.” That is, a worker who earns ¥1.3 million or more annually is no longer included with another worker’s – i.e., the spouse’s -- “dependent family.” The worker who has breached the wall must pay for pension and health insurance of his/her own.

In a family, the wall affects the lower-earning spouse. If a woman--and women typically earn less than men in Japan--is part of the dependent family of her husband, her pension and health insurance is covered by her husband. If her yearly income is less than ¥1.3 million, the payment for her pension and health insurance is paid by the company she works for. Her husband also can accept ¥380 thousands of reduction from his income tax for supporting his dependent family. But once the wife’s income exceeds ¥1.3 million, she and her husband no longer enjoy these benefits. In some cases, then, the wife is better off being her husband’s dependent family without any job than being an independent worker who has to pay for her own pension and health insurance.

Kishida supports only a temporary fix, either ¥500 thousand subsidy for each worker or a two-year moratorium on enforcement of the ¥1.3 million wall. The current system was established in 1986, when women were only beginning to gain financial and independence, and the government sought to support women unable to take that step. In the thirty-seven years since then, job prospects for women have improved. Fundamental system reform is needed, rather than one-time stop-gap measures.

Temporary relief is also the plan for other pillars. To address inflation, the subsidy for gasoline, electricity or gas, set expire at the end of this year may continue into next year. To raise workers’ wage, the government plans a tax cut for employers who have increased wages. To increase business investment the government may provide some support for semi-conductor industries.

Where does the money come from? Article 29 of Public Finance Act allows supplemental appropriations only when an urgent need arises after the yearly budget has been wrapped up. Inflation relief and wage growth may be urgent, demographic decline and infrastructure safety are not.

Furthermore, there is a fundamental question about the necessity of economic measures now, when Japan’s economy is not in a serious slump. According to the estimate of Cabinet Office, GDP gap in the second quarter of this year marked +0.4%, which meant total demand surpassed total supply for the first time in these fifteen quarters. Bank of Japan sees that “Japan’s economy is likely to continue recovering moderately.”

Nevertheless, Kishida insists on delivering stimulus measures, including tax reduction. “Now, we have to properly return the increased tax revenue, which is our achievement of growth, to the people,” Kishida said in his press conference. This statement caused speculation about a snap election within this year, because tax cuts typically garner higher popularity for incumbents.

The supplementary budget will be submitted to the next Diet session starting on October 20th. “I’m focusing on economic issues that cannot be delayed,” said Kishida, when asked about the possibility of snap election. As long as a snap election is a possibility, the opposition parties are unlikely to debate the supplementary measures aggressively. For Kishida, economic measures are merely tools to control politics.

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