The ruling coalition of the Liberal Democratic Party and its junior partner, Komeito, along with the opposition Democratic Party for the People, are about to start negotiations to reach agreements on key policy issues.

While the three parties’ attempt to strike a broad policy deal through open discussions is a step in the right direction, they would be putting the cart before the horse if they prioritize the stability of government operations and simply endorse an agreement based on predetermined conclusions.

The tax reduction plans proposed by the DPP have significant drawbacks and must be rigorously scrutinized to see if they are reasonable and how they can be funded.

The ruling coalition suffered a crushing defeat in the Oct. 27 Lower House election. Before it lost its majority, the government and ruling parties could simply decide on budgets and policy initiatives behind the scenes and push them through the Diet without serious, meaningful debate.

The best outcome would be if the ruling and opposition parties are able to deliberate meticulously on each issue in their concerted efforts to realize policies that gain the support of a majority of lawmakers.

However, focusing solely on securing a numerical majority to pass bills, while neglecting a detailed examination and evaluation of proposals to determine their reasonableness and feasibility, would invite the criticism that they are only seeking partisan self-interest.

In the three-party policy talks, the DPP, which sharply increased its Lower House seats in the election, is poised to put the highest priority on its policy proposal to raise the total income tax exemption threshold: 1.03 million yen, which comprises a 550,000 yen salary income deduction and a 480,000 yen basic income tax deduction.

In the Lower House election, the DPP pledged to raise the amount to 1.78 million yen, touting the increase as a measure to address the increased tax burden accompanying nominal income growth.

Indeed, until about 30 years ago, minor increases in the income tax exemption threshold were repeatedly made as adjustments for inflation. After years of keeping the tax exemption limit unchanged during the subsequent deflationary period, it makes sense to make a review of the basic deductions in line with the recent price increases.

However, the 750,000 yen increase promised by the DPP is clearly excessive. The party claims its proposal is based on a 70 percent increase in the average minimum wage over 30 years, but the raise should be adjusted for inflation, which would justify an increase of about 10 percent.

A uniform increase in the basic deduction by 750,000 yen would result in an overall tax reduction of 7 to 8 trillion yen annually, including consequent cuts in residential tax, creating a big hole in tax revenue.

Higher-income earners would benefit more from the tax cut, undermining the income redistribution. Any change in the non-taxable threshold should be carefully discussed in conjunction with the overall income tax regime, including the tax rate structure and the taxation of financial income.

The DPP’s proposal to invoke a “trigger clause” to temporarily lower the gasoline tax also raises some serious issues. This measure temporarily eliminates the tax surcharge, but it could lead to a decrease in tax revenue of 1.5 trillion yen annually, potential disruptions in distribution due to price volatility, and setbacks in decarbonization efforts.

The DPP previously discussed the idea with the LDP-Komeito coalition, but it was shelved. Measures to cushion the effects of higher prices on household finances need to specifically target the struggling layers of society for support.

Yuichiro Tamaki, the leader of the DPP, stresses recent increases in tax revenue in promoting his party’s call for tax cuts, but the fiscal reality is that 30 percent of the government’s revenue comes from borrowing.

It is irresponsible for the party to turn away from the crucial question of how to finance tax reductions and promote generous spending as if swinging a magic wand.

The LDP and Komeito should also be aware that going ahead with a raft of policy initiatives of questionable necessity would only hamper their efforts to regain public trust.

--The Asahi Shimbun, Nov. 2