Ruling party policy chief Seiji Maehara and the Finance Ministry have gone toe-to-toe over proposed tax increases to pay for rebuilding measures in areas stricken by the Great East Japan Earthquake.
Ruling party policy chief Seiji Maehara and the Finance Ministry have gone toe-to-toe over proposed tax increases to pay for rebuilding measures in areas stricken by the Great East Japan Earthquake.
But the powerful ministry now appears to be pushing Maehara into a corner.
Finance Ministry officials were largely responsible for a government proposal calling for about 11 trillion yen ($142 billion) in revenue from temporary tax hikes to help cover the estimated 16 trillion yen needed for the rebuilding measures.
Maehara is calling for a smaller tax hike amount, with the difference made up through so-called hidden treasures lying in various special accounts of central government ministries and agencies.
Initially, Finance Ministry officials came up with 3 trillion yen in revenues through a reduction of the child allowance decided by the administration of Naoto Kan, predecessor to Prime Minister Yoshihiko Noda, as well as a decrease in personnel expenses for civil servants.
However, Finance Minister Jun Azumi instructed officials to find other nontax revenues in light of the strong opposition to tax hikes voiced by some candidates in the Democratic Party of Japan's presidential election in August.
Ministry officials put together the package of 5 trillion yen in nontax revenues, with additional funds coming from selling central government stockholdings, such as its shares in Japan Tobacco Inc., and dipping into surplus funds in the special account of the Fiscal Investment and Loan Program.
Noda actually praised Azumi, calling the revenue proposal a good one.
Maehara, however, was far from satisfied.
On Sept. 17, he told reporters in Sendai, "I will seek additional (revenues besides a tax hike)."
Maehara was encouraged by Noda's intention to strengthen the role played by the DPJ Policy Research Committee and made a play to gain the upper hand in setting fiscal policy.
Behind Maehara's comment was the strong opposition to tax hikes within the DPJ.
Calls for paying for the rebuilding measures through revenues other than a tax hike have echoed in meetings of the DPJ tax commission.
Maehara is also looking toward discussions with the People's New Party, the DPJ coalition partner, as well as opposition parties, which control the Upper House. Their cooperation will be needed to pass any tax hike into law.
PNP Secretary-General Mikio Shimoji has proposed selling government-owned shares in Japan Post Holdings Co. to pay for the rebuilding effort.
Shigeru Ishiba, policy chief of the main opposition Liberal Democratic Party, has also said discussions should not be preconditioned with tax hikes as an established fact.
But Finance Ministry officials insist there are no other revenue sources available.
At a Sept. 19 meeting of executives of the DPJ tax commission, high-ranking ministry officials were called on to discuss nontax revenues. However, no decision was made on dipping into special accounts because of concerns that such a move could lead to higher interest rates and a downgrading of Japanese government bonds.
Azumi is obviously displeased at what Maehara is trying to do.
"We have not thrown a high ball as if this were some form of negotiations," Azumi said at a Sept. 20 news conference. "We have put everything that we could find on the table."
By the evening of Sept. 20, Maehara had softened his stance, saying only that he would ask the Finance Ministry to further look into whether additional nontax revenues could be found.
Other DPJ Policy Research Committee executives were also saying that they may have reached the bottom of the barrel.
If the government wants to submit a third supplementary budget to the Diet by mid-October, a decision on revenue sources must be made by the end of this month.
If Maehara should stumble in his first major test for expanding the influence of the DPJ Policy Research Committee and bend to the wishes of the Finance Ministry, it would not only weaken the DPJ's role in policy decisions, but also Maehara's own influence over such matters.
(This article was written by Kentaro Kawaguchi and Norihito Sato.)