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Politics

Japan's fiscal hawks lay low despite record budget blowout

Once a major presence in the ruling LDP, deficit fighters are silenced in pandemic

Prime Minister Yoshihide Suga's budget policy meets no objections from the ruling Liberal Democratic Party.   © Kyodo

TOKYO -- As Japan readies a record 106 trillion yen ($1.02 trillion) budget for fiscal 2021, the ruling party's fiscal conservatives have fallen silent, choosing not to block pandemic relief that could deliver a win for the party in a general election next year.

Prime Minister Yoshihide Suga's government and the ruling Liberal Democratic Party agree that generous spending is needed to support an economy pummeled by the pandemic. But now the country's long-term goal of fiscal consolidation appears to be under threat. 

Two separate meetings on Dec. 8 illustrate this point. On the agenda was the government's budget policy for fiscal 2021, which conspicuously dropped the target of achieving a primary surplus in fiscal 2025. The goal of balancing the budget excluding debt-servicing costs had been included in the policy each previous year.

A robust debate had been anticipated at the General Council meeting, even if none actually voiced outright opposition. The council, the LDP's top decision-making body, includes members such as Takeshi Noda and Yoichi Miyazawa, fiscal hawks who spent part of their careers in the Finance Ministry.

Yet Tsutomu Sato, who chairs the council, said afterward that the policy was approved without objection.

The party's Policy Research Council met earlier that day. One attendee questioned the phrase "steadily furthering spending reform," contending that "there is no need to mention that in our current situation." Fiscal considerations should be put on the back burner in light of the pandemic-induced economic slump, the thinking went.

The only objection came from Norio Mitsuya, acting chair of the council, who asserted that the government "must continue to show support for fiscal consolidation."

Even an LDP subcommittee on medium- to long-term fiscal reconstruction has raised no objections to the fiscal 2021 draft budget.

During the LDP leadership race in September, candidates Fumio Kishida and Shigeru Ishiba -- both of whom previously took hawkish stances on fiscal issues -- were lukewarm in their comments on such policy. Kishida said the consumption tax could be raised "if it is needed to reform our social insurance system," while Ishida said only that fiscal health should not be forgotten.

Spending reforms are a lower priority than keeping Japan's economy from collapsing while coronavirus cases surge again. The LDP is also leery of policies that could antagonize industry groups ahead of the next general election, which will take place by October 2021. Suga's sinking approval rating is likely to push the government toward freer spending as well.

Fiscal discipline was once a major point of contention within the LDP. In 1979, then-Prime Minister Masayoshi Ohira's cabinet approved preparations to introduce a general consumption tax, but the idea was dropped as opposition within the party mounted. Similarly, Prime Minister Yasuhiro Nakasone's proposal in 1987 for a sales tax failed to pass.

An increase in the consumption tax rate to 5% in 1997, on top of a financial crisis, forced Ryutaro Hashimoto to resign as prime minister just over a year after the hike took effect. In the 2000s, a clash between the growth-focused "Rising Tide" faction and fiscal hawks split the LDP in two.

But no meaningful opposition stands against Suga's stimulus agenda, just as most of the party united behind him in the September leadership race. The main faction supporting Suga favors fiscal stimulus, while previous Prime Minister Shinzo Abe, who came from the LDP's largest faction, is reluctant to raise the consumption tax again.

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