[Column] Victory for Japan's ruling party sets stage for PM Kishida's policies

The campaign trail included lively debate over how to improve economic conditions for Japan's struggling populace, something the campaigns for the presidency in South Korea could use more of

Japanese Prime Minister Fumio Kishida holds a press conference Monday on the results of the House of Representatives election, held on Sunday. (AFP/Yonhap News)

Lee Kang-kook

By Lee Kang-kook, economics professor at Ritsumeikan University

In the general election in Japan’s House of Representatives on Sunday, Oct. 31, the ruling Liberal Democratic Party (LDP) clinched an absolute majority, enabling it to control the Diet without a coalition.

The main issues in this election were the government’s response to COVID-19 and economic policies to boost the standard of living. The competing parties joined in a lively debate over how to improve economic conditions for Japan’s struggling populace.

Japan saw some economic recovery and higher employment during the Abenomics program that former prime minister Shinzo Abe launched in 2013, but living standards remained stagnant during those years. Real wages have slipped during six of the past eight years and are now lower than they were before Abenomics. While the government rolled out a stimulus package amounting to 16.5% of gross domestic product (GDP) in response to COVID-19, the economic recovery has been slow and aggregate demand remains sluggish.

Facing that reality, Prime Minister Fumio Kishida, who was recently elected head of the LDP, promised to pursue a new kind of capitalism that would emphasize a virtuous cycle of growth and distribution. Kishida’s vision is to create a society in which the benefits of growth are more evenly distributed by raising wages for workers at suppliers, hospitals, daycares and nursing homes. In the election, the LDP promised to give tax breaks to companies that raise wages in pursuit of its goal of increasing the labor share of income and strengthening the middle class.

Kishida also released a plan to fight inequality by raising taxes on financial income. In Japan, the highest income tax rate (including local taxes) is 55%, while financial income (including interest and stock sale profits) is taxed separately at the low rate of 20%.

Kishida means to knock down the “100-million-yen wall” — for wealthy Japanese who derive much of their income from financial investments, the effective income tax rate (tax as a percentage of real income) rises until reaching 100 million yen (around US$880,000) in annual income but then gradually decreases beyond that point. This new emphasis on distribution dates back to the second phase of Abenomics in 2016; the Abe administration began implementing free childcare and free education and taking steps to improve the lives of irregular workers in 2019.

During the campaign, the Constitutional Democratic Party of Japan (CDPJ), the country’s main opposition party, stressed that disposable income has decreased, spending has stagnated, real wages have declined, and taxes have risen under the LDP-led government. There can be no growth without distribution, the CDPJ contended. The opposition party promised to lower the consumption tax, give individuals with yearly income of up to 10 million yen (around US$88,000) temporary waivers on income tax, and pay out cash benefits of 120,000 yen (around US$1,000) a year to low-income earners. Other pillars of the CDPJ campaign platform were expanding basic services such as medical care, elderly care, and childcare; raising the minimum wage; and amending the Worker Dispatch Act to give more workers permanent positions.

The CDPJ and other opposition parties focused their criticism on the fact that corporate profits continued to increase under the easy money of Abenomics, but the government kept raising consumption taxes while decreasing corporate income taxes. In effect, the opposition said, the higher consumption tax was making up for the shortfall in revenue resulting from corporate tax cuts. To rectify the low effective tax rate applied to the wealthy and big corporations, the CDPJ unveiled a plan to raise the highest income tax rate and add a progressive component to corporate income tax.

In this election, voters opted for the LDP, but it remains to be seen to what extent distribution will be improved. Kishida’s announcement of plans to raise the financial tax rate triggered sharp criticism and a stock market selloff, causing him to backpedal. The opposition parties collaborated on unity candidates, but the election results didn’t live up to expectations. Unsurprisingly, genuine change will require a stronger labor movement and more political pressure from the voting public. Nevertheless, it’s significant that income distribution and higher wages were big issues in the election.

Over in South Korea, the presidential election is just a few months away. It’s often said that Korea’s democracy and politics are more dynamic and advanced than those of Japan. There may be something to that: while Japan faces ongoing social and economic stagnation and de facto one-party rule, the Korean economy is humming along and its political parties take turns running the government. When we look at the political participation index — which measures voter turnout and stakeholder engagement in laws and regulations — Japan ranks dead last among advanced countries, while Korea scores the highest.

But watching the Korean news, both the ruling and opposition parties appear focused on slinging mud at candidates on the other side of the aisle. The candidates’ main pledges are unclear and don’t seem to attract much debate. To be sure, vetting character is important under Korea’s presidential system, where voters elect the president directly, in contrast with Japan’s parliamentary system. But even more important is for the candidates to compete on a vision and pledges about how to tackle current problems, improve citizens’ lives and build a better future, while building public consensus in the process. I hope to see more constructive debate over the next four months, which will be in the rearview mirror before we know it.

Please direct questions or comments to [english@hani.co.kr]