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The 'golden parachutes' to economic growth

TOKYO -- More than four years since the massive earthquake and tsunami hit the northeastern part of Japan, memories of the twin disasters appear to be just that -- memories. The fact that time has past since that terrible day can be seen in how the latest reconstruction budget has been funded.

        The Japanese government in late June decided to spend a total of 6.5 trillion yen ($52.6 billion) during the five fiscal years beginning next April on further reconstruction efforts.

     But the government decided to neither raise taxes nor sell some of the corporate shares it holds to fund the rebuilding. Instead, it decided to pull additional tax revenue out of an economic recovery and use that money to help rebuild affected areas.


Prime Minister Shinzo Abe, second from right, and his cabinet ministers adopt a new five-year reconstruction budget in late June.

   What happened behind the scenes before the government adopted the five-year reconstruction budget?

     First we have to start in front of the cameras. On March 17, in televised remarks to the Diet, Japan's parliament, Prime Minister Shinzo Abe raised eyebrows at the Finance Ministry's Financial Bureau, which is responsible for managing state-owned assets.

     Abe's remarks at the budget committee of the upper house were more positive than the Finance Ministry had assumed about selling shares in Japan Tobacco.

     The government is the top shareholder of Japan Tobacco, the former state monopoly, with a 33.35% stake.

     Beginning in fiscal 2016, the government is legally required to "consider" selling Japan Tobacco shares to help finance reconstruction. But Abe surprised the Finance Ministry by making more positive remarks than expected about selling the shares.

     Abe said that the government "will make an appropriate decision" on the matter while taking into account the question of whether owning the shares "serves the public interest."

     One Finance Ministry official at the time wondered, "Does the prime minister want to sell Japan Tobacco shares?"

     The Finance Ministry was shaken by Abe's remarks. At the time, the ministry was considering an advisory panel that would look into -- but decide against -- selling some of the shares to fund reconstruction efforts.

     The reason? Japan Tobacco offers so-called "golden parachutes" for senior Finance Ministry bureaucrats, as the company's top-level posts usually go to former administrative vice finance ministers.

     "There had been growing skepticism within the prime minister's office about the Finance Ministry's intentions with the Japan Tobacco shares," one government source said. The source specifically cited the possibility of the ministry taking a cautious stance on any sale to defend its interests.

     Sure enough, months later the Finance Ministry panel did consider the issue and did decide not to go ahead with the sale.

     To rationalize its decision, the panel pointed out the many tobacco farmers in the areas that were hit by the disasters and noted that dividends the government receives from its shareholdings help to fund public-private ventures like the Cool Japan campaign, ostensibly meant to help spread Japanese youth culture around the world.

     In a report, the Finance Ministry panel also said, "There is a need to keep in mind the situation in which the necessity for and rationality of disposing of Japan Tobacco shares will grow further."

     In other words, the ministry was signaling the prime minister's office that it would take a positive stance on selling those shares in the future.

     With those plum jobs saved, at least for the time being, the ministry did make a significant concession, deviating from one of its principles. It agreed to use extra tax revenue that can be expected to follow any economic growth to help fund part of the five-year reconstruction program. This kind of hocus-pocus was not allowed for the fiscal 2011-2015 program.

     This capitulation starkly contrasts with the ministry's vehement objections to counting on expected tax revenue gains to pay for cuts in the effective corporate tax rate, beginning in fiscal 2015.

     The ministry changed its stance and made the funding concession "as a last resort," feeling it had "no choice but to pay consideration to the public burden," a senior official at another economic ministry said.

     Some pundits are pointing out other possible reasons behind the ministry's decision, such as an unwillingness to decide on any additional tax hike ahead of next summer's upper house election.

     Raising taxes has not been discussed as an option to help finance the new five-year reconstruction plan "because memories of the disasters are fading with time," lamented a lawmaker from one of the affected areas.

     In the eyes of the Diet member, selling Japan Tobacco shares and raising taxes would place burdens on Japanese tobacco farmers and on taxpayers that neither group can carry right now.

     More than four years have passed since havoc was wreaked in the northeastern part of the country, and the new five-year reconstruction budget appears to reflect how the public now has something else at the fore of its collective mind.

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