Japan Road-related Tax Revenue Sparks Tug of War

Reviewed by Hitoshi URABE

Article:
Japan Road-related Tax Revenue Sparks Tug of War
(Yoko Nishikawa) Reuters
http://today.reuters.com/news/articleinvesting.aspx?
type=bondsNews&storyID=2006-12-06T104056Z_01_
T205813_RTRIDST_0_JAPAN-ECONOMY-ROAD.XML

Comments:

There are various taxes levied on owning and running a car or a truck, private or commercial, in Japan. Starting out with a form of sales tax calculated according to the weight of the vehicle to surtax charged when purchasing gasoline and other types of fuel, there are taxes everywhere for operating a vehicle.

One of the reasons for the heavy burden imposed on vehicle owners and operators is a remnant of the old notion, that such things are luxuries and people involved are deemed rich. But more practically, people has not complained much on such taxes because they are collected to be added to a fund, a fund exclusively set aside for the purpose of road construction and improvement.

Indeed, the scheme worked well. It restored the roads from the damages of the war, and then went on to provide superhighways as well as to widen town streets and pave farm roads. The investment brought huge returns, - better roads helped efficient transportation of people and goods; which called for more vehicle production; making it possible to provide less expensive cars and trucks; to the levels ordinary people could afford them; which encouraged competition among manufactures, and stimulated R&D to satisfy the customers; enabling manufacture to roll out better cars efficiently. It resulted in increased export of cars as well as assisted upgrading the overall level of Japan's industry, not limited to those related to vehicles.

But there have been an argument for a while that such special-purpose tax is no longer necessary. They accuse, as the revenue tends to surpass the real needs recently, that those managing the fund are spending them unnecessarily, to create extravagantly gorgeous highways to remote farms and villages - which destroyed natural environment on the way -, and to smoothly pave every little side streets and alleys in cities and towns - resulting in increased traffic accidents in what used be quiet residential areas. And all this while the general budget is ailing with a huge deficit and outrageous level of accumulated debt.

Prime Minister Abe has recently expressed his intention of converting a significant portion of this earmarked tax money into general-purpose use, the idea which, as the headline of the article says, sparked tug of war among related parties, and especially within the leading Liberal Democratic Party (LDP) where Mr Abe is the president. Those who are against Mr Abe have presented a long list of reasons for the fund to be continuously earmarked. But while some reasons in the list are supposedly legitimate, many suspect that a significant number of the reasons presented could be intentional, to protect the vested interest.

Prime Minister Abe enjoyed a high support rate when he came into office in September and it was boosted by his surprise visit to S.Korea and China immediately afterwards. But it faded somewhat when he failed to send his messages across at the APEC meeting in Hanoi. Then his popularity slipped significantly when he allowed the rebels who were ousted from the LDP at last year's election to return to the party, making people wonder how he and his party considers the rights and powers of the voters - and last year's election results.

If Mr Abe were to fail in properly handling this tricky tax issue, his popularity among the people and/or his support within the LDP could be severely jeopardized.