Comments on the Katz-Miyao Debate

Tommy Hung Keng Lim (University of Southern California, USA)

I find the ongoing debate between Mr. Richard Katz and Professor Takahiro Miyao on Japan's tax reform issue to be highly engaging and thought-provoking. While both parties are highly convinced of their own interpretations on the issue, then perhaps a critical examination of the news article "MOF bureaucrats steal reform show" published in The Nikkei Weekly on June 24, 2002 can shed some light on this topic.

Clearly, the whole article is littered with evidence that suggests there is a distinct difference of opinion in tax reform proposal between the members of the Council on Economic and Fiscal Policy (headed by State Minister Heizo Takenaka) and that of the Ministry of Finance bureaucrats. The Council on Economic and Fiscal Policy "came up with the plan to use funds from spending cuts to reduce taxes."; "The Ministry of Finance's adamant opposition to the plan" illustrates the first of many indications to come of this clash in positions. The others include "the panel could not finalize the draft due to opposition from the Ministry of Finance" and "interim tax reform proposals compiled by private-sector members were opposed by bureaucrats." In light of all this evidence, I strongly endorse Professor Miyao's view that "the main battle line has been drawn between the government's Tax Commission chaired by Hiromitsu Ishi who advocates the MOF's position on one hand and the Council of Economic and Fiscal Policy headed by Minister Takenaka on the other."

Another interesting point brought up by Professor Miyao is that "Finance Minister Shiokawa, an opportunistic politician, has been shifting his position somewhere between these two camps." Pardon my ignorance if I am wrong, but doesn't Prime Minister Koizumi fall into this same category? Within the short span of four days, PM Koizumi has changed his stance from being "committed to carrying out (government) spending cuts and tax reductions to stimulate the economy" to telling "Chairman Hiromitsu Ishi of the government Tax Commission to map out tax reform plans for fiscal 2003 based on Shiokawa's proposal." Perhaps it is too harsh to label PM Koizumi as an opportunistic politician as we have to take into consideration that there exists outside factors and influences that are not within his control, but nevertheless this apparent lack of power that PM Koizumi wields has a big part to play in how Japan's tax reforms eventually shape up. This point is ever more salient when one council member from the private sector laments, "Ministry section chiefs now have more power than the prime minister."

At the same time, both the members of the Council on Economic and Fiscal Policy and the Ministry of Finance bureaucrats claim to have the support of Prime Minister Koizumi in stating their respective cases. This is shown in two separate examples in the article. First, State Minister Takenaka "handed Koizumi a draft list of tax cuts he proposed as the ‘prime minister's instructions.'" Second, Ministry of Finance officials "deny they were behind the recent series of tax reform-related developments, which they stress were a result of Koizumi's political decision based on Shiokawa"s initiative."; These two cases only serve to underpin the notion that PM Koizumi holds no concrete power.

Last but not least, revitalizing the Japanese economy through effective tax reforms will undoubtedly require a lot of planning, effort, and time. Most importantly, the battle for supremacy between the members of the Council on Economic and Fiscal Policy and the Ministry of Finance bureaucrats belies a far more deep-seated problem that has to be eradicated before an economically viable tax reform proposal in Japan can be drafted, that is, the present political structure. Unless Japan changes its "bureaucrat-led system," reforms will be "led by the bureaucrats," and this in turn will translate into a long road to recovery for Japan.