Stop Wasting Taxpayers' Money: Insights from the Japan-US Innovation Summit

In Japan, there is a peculiar variety of daytime TV shows known as "wideshow" (ワイドショー). The wideshow is a hybrid of news, pseudo-political discussion, and telemarketing for facial toning products. Panels can consist of not-so-busy lawyers, comedians, and magicians. Characterized by a notably left-wing bias, these programs often present skewed images of Japanese taxpayers' sentiment concerning current affairs. Such cases include the scale of opposition to the 2021 Tokyo Olympics and support for a system of separate surnames for married couples. Prime Minister Fumio Kishida's plummeting support ratings are another more recent example. 

What about public reaction to tax increases? The tax burden has increased from 20% in the 1970s to 45%. Japan seeks to increase its defense spending to approximately ¥8.9 trillion JPY ($67.47 billion USD) by fiscal 2027. This would be almost ¥4 trillion JPY ($30.33 billion USD) more than its current budget. However, the government plans to raise corporate, income, and tobacco taxes to secure the necessary financial resources. Wideshows were quick to report that a majority of citizens oppose a tax hike to finance increased defense spending. As always, though, they missed the crux of the matter. Citizens are not only against such tax increases. They also have a better solution. 

A Question of Pride

On August 12, 200 Japanese taxpayers met in Kawasaki for the seventh annual Japan-US Innovation Summit. Organized by the Pacific Alliance Institute (PAI), in partnership with Americans for Tax Reform, the summit brings together grassroots organizations such as the Japan Institute for Libertarianism and Japanese for Tax Reform (JTR). These groups fundamentally oppose tax increases. 

In his opening remarks, the chairman of the PAI, Yuya Watase, succinctly encapsulated the essence of tax reduction. 

"State programs based on high taxes is the government's way of saying you are incapable," Watase said. "Lowering taxes is saying 'yes' to your potential. Bureaucrats do not believe you can manage your own life and affairs. This is a question of self-esteem, of pride. Those who founded the Diet sought to engender this spirit of independence and self-respect." 

Other presentations and discussions at the PAI event also focused on lowering taxes as a core tenet of this autonomy.

Energy Subsidies

Several PAI speeches in Kawasaki made clear the parallels between energy taxes and subsidies in the US and Japan. Grover Norquist, president of Americans for Tax Reform and one of the world's most renowned tax reduction advocates, was the first speaker. 

"The means is the problem," Norquist spoke. "In the United States today, our government is trying to make energy more expensive. It is the policy of the Democratic administration to force people into green, meaning subsidized, energy. They don't want an energy industry or products that are clean. They want ones that only exist because of subsidies and mandates." 

Outdated Taxes

NHK Party and House of Councillors member Satoshi Hamada observed that "One particular oddity about the Japanese gasoline tax is the 'for the time being' tax rate [¥25.1 JPY of the price of gasoline]. This tax rate was introduced 40 years ago yet shows no sign of disappearing. Just how long constitutes for the time being?" 

"Another peculiarity concerns the trigger clause, adopted in March 2010," Hamada continued. "When gasoline prices exceed ¥160 JPY per liter for three consecutive months, the government takes special measures to reduce gasoline taxes. This clause has been frozen since January 2011 to avoid issues with securing funds for reconstruction from the Great East Japan Earthquake. That was over ten years ago. Isn't it about time we revived the clause?"

Subsidies but no Tax Reduction

Another concern for Hamada is the new gasoline subsidies introduced by Prime Minister Kishida in September to keep the retail price at ¥175 JPY per liter. 

"Although the government claims it does not have the financial resources to reduce the gasoline tax, it does for gasoline subsidies," Hamada argued. "The government complains of financial difficulties despite allocating a supplementary budget every year to the general account budget. It is time the government did away with these taxes for which the rationale no longer exists." 

The Fallacy of Government Pensions

Concerns abound among Japanese citizens as to whether or not they will be able to receive a substantial pension upon retirement. 

In a discussion at the PAI event between Watase and Hamada, the chairman expressed skepticism about Japan's current pension system. 

"We pay so much into the pension system and receive only a fraction back," Watase said. This means that the Ministry of Health, Labor, and Welfare is managing an increasingly enormous pension fund every year. 

"I had the opportunity to ask the Ministry what it hoped to achieve by managing this ever-accumulating fund. The answer I received was that the Ministry hopes the pension fund will be enough to cover all annual costs approximately 100 years from now." 

"Who here today will be alive in 100 years? Can you imagine the people of Japan in 1923, the year of the Great Kanto Earthquake, worrying about whether the government today would have saved enough in pension payments for a year's worth of costs? After 1923, there was the Second World War, rapid economic growth, the collapse of the Soviet Union, and the collapse of the bubble economy. Innovation and technological advancements are also beyond prediction. It is pure nonsense to try and financially calculate 100 years into the future." 

Brainstorming the Future of Japanese Pensions

What might be a suitable alternative? Responding to the question of what Japanese people can do about the inefficiency of their pension system, Norquist pointed to portable pensions. 

"Most pensions in the US now are defined contribution accounts [individual retirement accounts]," Norquist said. "When you work, you receive your pay, and the company will pay 10% into a retirement fund, which you control. You can add another 10% to that, and it's tax-free. The government pension system set up by FDR [President Franklin D Roosevelt] is a Ponzi scheme because the money you save today goes to your grandfather tomorrow. It's not money saved for you. All new companies in America have a defined contribution plan that you can take when you change jobs. We need to get all pensions structured that way."

A Case Study of Chile

The case of Chile is a prime example of the benefits of personal retirement accounts over the social security system. In 1980, the country passed a law allowing all citizens to switch from the social security system to an individual retirement account. Ninety-five percent of the total eligible workforce chose the new plan. Chile floated a bond equivalent to 37% of the Chilean GDP to finance the transition. 

Forty-two years later, these accounts comprise 76 percent of the entire Chilean GDP. The average Chilean's retirement account is now $25,000 USD, 31 times their monthly salary. Despite reforms to the private pension system, private retirement savings accounts (PRSAs) are so popular in Chile that no administration would dream of reverting to the old system, no matter how strong its socialist tendencies were.

Children and Families Agency

Wasteful government spending was also addressed at the PAI event in a mock award ceremony titled The 2023 Award for Wasting Taxpayers' Money. In 2022, the grand prize went to a 13-meter-long squid statue erected in Ishikawa Prefecture. It was built using ¥25 million JPY ($228,500 USD) from an emergency COVID-19 relief grant. 

This year, the award went to the Children and Families Agency, a newly established external bureau of the Cabinet Office. The agency was ostensibly set up to centralize administrative tasks previously handled by the Cabinet Office and the Ministry of Health, Labor, and Welfare in fields pertaining to children. Among the tasks of the new Children and Families Agency are devising countermeasures for declining births. 

Incentives Financed by Taxes

As part of these measures, Kishida proposes further increasing child-care allowance. However, a 2009 report compiled by the Board Audit of Japan, Impact of Child Care Support Measures on Fertility Rates: Analysis of Municipal Data, suggests more spending would be futile. According to the report, it would cost ¥100,000,000 JPY (approximately $676,825 USD) in child-care allowance for the number of children being born to increase by one. 

Similarly, financial support for nursery schools would have to reach ¥27.8 million JPY (around $187,000 USD) per school before it resulted in the birth of a single child. It is difficult to see just how having to work to pay for all the taxes that would finance these incentives could have anything but a negative impact on birth rates. 

Wasting Taxpayer Money Is a Time-Honored Political Tradition

Precisely how long it will take to achieve tax reform in Japan is far from clear. The Japan Innovation Party has proclaimed its intention to lower taxes and oppose tax increases. With its popularity rapidly increasing, the party is becoming a growing threat to the Liberal Democratic Party (LDP) administration. 

However, with the exception of the Japan Innovation Party, very few politicians from any party bring up tax reform in parliament, let alone campaign on it. The amount of parliamentary time opposition parties such as the Constitutional Democratic Party wasted on bogus charges against the late former Prime Minister Shinzo Abe perfectly demonstrates that wasting taxpayer's money is an all-party pastime. 

Amid this uncertainty, the words of JTR president Masaru Uchiyama in his closing remarks provided some comfort: "The tax reform movement will continue. You, the people here today and those we have yet to meet, will keep the fire burning. This is the kind of work that takes time."

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Author: Daniel Manning