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PM Kishida's Tax Cut Plan is Full of Contradictions

Kishida seems to be betting on tax cuts to keep his administration afloat, but his approach is "incongruous" with the anticipated defense tax hikes.



Prime Minister Fumio Kishida delivers a policy speech at a plenary session of the House of Councillors on October 23. (©Sankei by Takumi Kamoshida)

During a Parliamentary session on October 23, Prime Minister Fumio Kishida announced plans for bold economic measures. In his policy speech, Kishida emphasized that his administration would place top priority on the economy for the foreseeable future. He also stated that he would return increased tax revenues to the people to transform the slumping economy into a growth-based economy. The central pillar of this plan will be an income tax reduction. 

However, with a defense tax hike also on the horizon, opposition parties have criticized the plan as "incongruous." Explaining the overall policy regarding the public burden will likely be the greatest challenge for the current Diet session. 

Kishida cited the developing changes in wage increases and the gap between supply and demand in his speech. Wage hikes have remained flat over the past 30 years. At one point, the supply-demand gap reached ¥50 trillion JPY (around $333 billion USD). However, both are now showing signs of improvement. "For the first time in 30 years, we have a great opportunity to move on to a new economic stage," Kishida enthusiastically declared. 


Tax Cuts or Tax Hikes?

Measures to ensure a break from economic stagnation will include "strengthening supply capabilities" and capital investment. "Giving back to the people" will be another cornerstone of the economic stimulus package. Kishida and his associates have posited the focus on the economy at this juncture as "a historical duty of the cabinet."

On the defense budget, however, the prime minister did not specify the timing of the defense tax hike. "We will make our decision based on economic trends, wage hikes, and the government's response to these trends," Kishida explained. The prime minister did not mention funding for measures to combat the declining birthrate either.

A senior Prime Minister's Office official explained that "the respective timings of the tax cuts and tax increases do not overlap. It is perfectly coherent." However, there is no denying that a more precise explanation is required. Focusing exclusively on short-term reductions in the public burden will also increase the risk of these policies being seen as a cheap bid to win votes.

Precarious Footing

Kishida and his administration are facing grim prospects. Cabinet approval has failed to halt its downward trend. On October 22, the ruling Liberal Democratic Party (LDP) also lost one of two seats in two unimpressive by-election results. 

Secretary-General of the LDP Toshimitsu Motegi responds to questions at the LDP headquarters. On the left is Yuko Obuchi, the chair of the Liberal Democratic Party's election strategy committee. October 22, Nagatacho, Tokyo. (©Sankei by Kanata Iwasaki)

Although the LDP narrowly retained its lower house seat, it lost a seat in the upper house. Kishida's strategy is to win the next lower house election and be reelected next fall in the LDP presidential election. However, reversing and improving his approval rating and finding an opportune time to dissolve the lower house will not be easy. 

The administration is pinning its hopes on a change of fortune from next spring onward. First, the campaign next spring must ensure a trend of wage increases and fulfill the promise of public returns. If Kishida can achieve this, it will lead to increased disposable income, and a positive cycle of economic growth will begin to take shape. This is the strategy the administration is banking on. Whether it is successful or not will largely determine the administration's fate.


(Read the article in Japanese.)

Author: Tomoyuki Chiba


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