Japanese Government on Brink of Collapse Over Economic Package

A crisis in the Japanese government deepened last night as the largest party in the coalition threatened to pull out over a contentious $A200 billion economic package. The Social Democratic Party, which holds a quarter of the government's strength in parliament and six ministerial posts, vowed to resign unless its demands were met, leaving the government vulnerable to defeat. The package, which includes tax cuts and public spending, is the last major item on the prime minister's reform agenda, and negotiations between party leaders have been ongoing all day.

Key Takeaways:

• The Social Democratic Party, which represents a quarter of the government's strength in the House of Representatives, has threatened to resign from the coalition unless its demands are met.
• The party is specifically opposing a linkage between tax cuts and tax rises, and wants all revenue from the new tax to be used for "welfare-related outlays only".
• The tax bill, which needs to be ratified by the Diet (parliament), has a slim majority of only five in the House of Representatives, and defeat would make the position of Prime Minister Mr Morihiro Hosokawa untenable.
• The Social Democrats are supported by other coalition parties, including the Sakigake (New Harbinger) Party and the United Social Democratic Party, which have threatened to defect or resign over the tax plans.
• The economic package, which includes a $93 billion-a-year cut in personal and corporate income and property taxes, has been welcomed internationally as a way of boosting Japan's economy out of its 34-month-old recession.

Statistics:

• $A200 billion: the estimated cost of the economic package.
• $93 billion: the annual cut in personal and corporate income and property taxes.
• 10%: the equivalent tax cut for every worker under the economic package.
• 3%: the current rate of consumption tax in Japan (which would be increased to 7% under the economic package).
• 34 months: the duration of Japan's recession at the time of writing.
• 6 years: the length of time since the consumption tax was introduced in Japan.
• 5: the slim majority in the House of Representatives that the tax bill needs to pass.
• 76: the number of Social Democrats who could vote against the tax bill, leaving the government vulnerable to defeat.

Sources:

• Ben Hills, "Japanese Government on Brink of Collapse", Tokyo, The Age, Thursday.