Without engaging in substantial policy discussions, the ruling coalition and an opposition party have hastily hammered out an agreement on tax cuts that lacks a logical foundation.

In return, they have collaborated to pass an inflated supplementary budget.

This move can only be described as political collusion involving the ruling Liberal Democratic Party and its junior partner, Komeito, both eager to cling to power, and the opposition Democratic Party for the People, which is eager to promote its “achievements.”

On Dec. 11, the secretaries-general of the LDP, Komeito and the DPP agreed to expand the basic income tax deduction and cut gasoline taxes, in line with the demands from the DPP.

The senior politicians of the three parties stated, "We aim to raise the 1.03 million yen ($6,700) wall to 1.78 million yen, starting next year" and "The provisional gasoline tax rate will be abolished.”

The “1.03 million yen wall” refers to the total income tax exemption threshold, which comprises a 550,000 yen salary income deduction and a 480,000 yen basic income tax deduction.

In response, the DPP decided to support the extra budget bill currently under deliberation.

The three parties were in the midst of tax talks that began last month, sorting out key issues involved, such as expanding the basic income tax deduction, or the standard amount that reduces the income subject to tax, the rationale for raising it, and how to compensate for the consequent tax revenue loss.

Regarding the gasoline tax surcharge, the DPP sought the early abolition of the added “provisional” tax rate, while the ruling parties were inclined to consider the proposal next year, along with related taxation issues.

How does this agreement align with those discussions? We are deeply concerned that this crude and rash approach to tweaking taxes could distort the integrity of the tax regime and public finances.

Amid rising prices, some kind of support for low-income earners is necessary. The tax-exempt bracket for income and resident taxes has remained unchanged for about 30 years, and it is reasonable to adjust the level in light of recent price increases.

However, there are many questionable elements in the three-party agreement.

While the DPP’s proposal to raise the basic deduction to 1.78 million yen is based on the 70 percent increase in the minimum wage over the past 30 years, it is more rational to use the inflation rate as a guide for expanding the basic deduction, which affects most taxpayers.

The uniform 750,000 yen increase heavily favors high-income earners and is clearly excessive.

The proposed expansion of the tax deduction is estimated to reduce central and local government tax revenues by 7 trillion to 8 trillion yen annually. This significant reduction could severely impact administrative services and public finances.

Additionally, there are concerns about whether employers, responsible for withholding taxes at the source, can effectively implement this measure starting next year.

Simply abolishing the gasoline tax surcharge also has significant drawbacks. It would boost gas consumption and hinder decarbonization efforts. It will also create a 1.5 trillion yen hole in national and local tax revenues per year.

In exchange for this tax cut agreement, which is riddled with problems, the supplementary budget bill passed the Lower House on Dec. 12.

The spending plan includes many measures of questionable urgency and validity, with the total amount comparable to emergency expenditures made in response to past crises.

The three parties’ disregard for the serious deterioration of the nation’s fiscal health is outrageous, but the actions of Nippon Ishin (Japan Innovation Party) are also perplexing.

During the deliberations on the extra spending bill, the party criticized the plan for predetermining the scale of spending before identifying the needs, but then voted in favor of the bill in exchange for the ruling coalition’s agreement to start talks on free education with Nippon Ishin.

The supplementary budget passed the Lower House after only four days of deliberation, which failed to fix any of the major problems.

In a Diet session with “a minority government," the responsibility to aim for better policies through thorough deliberation carries greater weight for both ruling and opposition parties. All parties should be aware of this.

--The Asahi Shimbun, Dec. 13