Kishida Stakes All on Plan for Japanese Income Tax Cut; Move is Questioned Even Within Ruling LDP

By Tsuyoshi Oyabu and Mari Kaneyama / Yomiuri Shimbun Staff Writers

20:00 JST, October 24, 2023

Prime Minister Fumio Kishida declared his intention to make every effort to tackle rising prices and support people’s livelihoods in his policy speech at the plenary sessions of both houses of the Diet on Monday.

He also indicated his intention to return part of recent growth in tax revenues to the public, with an income tax cut in mind.

However, as some members in the ruling bloc are cautious about the tax cut plan, future discussions may go through twists and turns.

Economy dominates speech

“Economy, economy, economy,” Kishida said at the beginning of his speech, which lasted about 35 minutes. He went on to say that the economy should be given the first priority.

A senior member of the ruling Liberal Democratic Party said Kishida’s remarks reminded him of a speech by former British Prime Minister Tony Blair, in which he said, “Our top priority was, is and always will be education, education, education.”

Kishida used the expression “the flow of change” more than 10 times. As for economic stimulus measures, he said, “I am determined to take unprecedented bold steps.”

Of the about 8,600 characters in the text of the speech, about 2,600, or nearly one-third, were devoted to economic pump-priming measures.

The prime minister expressed his intention to repay the public as a pillar of his economic policy. Although he did not specifically refer to a limited-period income tax cut, it was evident that Kishida had the plan in mind.

In concluding the speech, he said, “I’m determined to take the lead in the efforts and make my best exertions by staking my career [on them].”

A close aide to Kishida said that the prime minister expressed his strong will to realize income tax cuts. “It’s the ‘postal service’ for Fumio Kishida,” the aide said, referring to former Prime Minister Junichiro Koizumi’s struggle for postal service privatization.

Koizumi’s call for postal service privatization drew opposition from some LDP members and part of his own support base. But he held on to his belief and achieved the goal.

Just as Koizumi made postal service privatization his top political priority, Kishida stressed in his speech that the economy is his top priority.

Some in LDP express caution

But there has been smoldering dissatisfaction within the LDP about the proposed income tax cuts. Some argue that it is difficult for the public to understand the simultaneous discussions of tax increases and tax cuts. This is because the government has decided on a policy direction of increasing corporate, income and tobacco taxes to secure some of the funding for bolstering defense capabilities.

At a meeting between Kishida and five key LDP members, including Vice President Taro Aso and Secretary General Toshimitsu Motegi, none of the five expressed support for the income tax cut plan.

Policy Research Council Chairperson Koichi Hagiuda reportedly expressed his objection, touching on the government’s policy of increasing taxes to bolster the country’s defense capabilities. “It doesn’t make sense to reduce the income tax,” he reportedly said.

Some LDP members continue questioning the plan to cut the income tax partly because the government’s fiscal management has long been dependent on deficit-covering government bonds.

“If we return increased tax revenues to the public while the government’s debt is increasing, it may be pointed out that fiscal discipline is loose,” said an LDP official who formerly served in one of the top three politically appointed positions at the Finance Ministry.

The LDP won one of the two Diet by-elections held on Sunday. But it lost the other to an opposition-backed candidate. The party squeaked a narrow victory in Nagasaki Constituency No. 4 in the House of Representatives, while it lost the Tokushima-Kochi Constituency for the House of Councillors.

Kishida instructed senior LDP officials to consider a limited-period income tax cut on Friday, two days before the by-elections. But the party failed to secure the two seats despite the prime minister’s step, which an experienced member of the opposition Constitutional Democratic Party of Japan described as a “shameless election ploy.”

The election results seem to indicate that Kishida has increasingly fewer options regarding when to dissolve the lower house. Kishida is believed to be considering his dissolution strategy by closely watching public response to his income tax cut plan.

When reporters asked Kishida about the possibility of dissolving the lower house for a general election by the end of the year, Kishida responded by emphasizing the economic.

“It’s time to focus on that. I’m not considering other things now,” he said.