Naoto Kan,Japans new prime minister,seems to have a soft spot for the Britain of 1997,when Tony Blairs New Labour swept to power. In his first few weeks in office,Mr Kan has not only pulled off the Blairite trick of giving his partys old guard the slip. He has also wrapped himself in slogans redolent of the 1990s.
The manifesto of his Democratic Party of Japan (DPJ) for elections to the upper house of the Diet,or parliament,on July 11th begins by promising voters a Third Way of economic policy. His government talks of private-finance initiatives. His fiscal plans are full of the word prudent. Mr Kan believes Japan is sitting on a dangerous heap of debt. If things go wrong,we could end up like Greece, he warned on television this week.
As quaintly last-century as some of his slogans appear,they strike an unusually bold change of direction in Japanese politics. Since Mr Kan took office on June 8th,replacing his discredited predecessor Yukio Hatoyama,he has yanked the DPJ at least if you believe its manifesto from a party of welfare largesse to one of fiscal discipline. Rival parties have joined the hair-shirt brigade. Suddenly,a debate on raising Japans consumption tax at 5 per cent,the lowest in the rich world has vaulted to the centre of a national election campaign. In the general election last year that ended five decades of rule by the Liberal Democratic Party (LDP),the DPJs manifesto did not even mention the gaping hole in Japans public finances.
Promising higher taxes to deflation-coshed voters just ahead of an important election would be a strange calculation in any country. In Japan it has additional political and economic poignancy. The consumption tax reaped devastating results for its supporters in upper-house elections shortly after it was introduced in 1989. After it was raised to 5 per cent in 1997,it once more harmed its sponsors and helped derail Japans economic recovery,plunging the country into a second lost decade of economic growth.
But Mr Kan appears to have judged that,for three reasons,an election fought over tax will be less risky than in the past. First,because more voters acknowledge a rise in the consumption tax is necessary; second,because he hopes to achieve cross-party support for it; and third,because he can finesse the timing,depending on the health of the economy.
The first calculation is helped by the sovereign-debt crisis in Europe. Since January,when Mr Kan was finance minister in Mr Hatoyamas government,he has been arguing ever more frequently that Japan,the country with the largest gross-debt-to-GDP ratio in the developed world,is living beyond its means. For now,Japan has no trouble raising funds to meet its debts,and interest rates on government bonds are barely above 1 per cent. But the finance ministry argues that within the next several years,debt on its current trajectory will exceed national savings,in which case Japan would have to look abroad for funding.
That,government officials believe,has alarmed the public enough for it to accept that some belt-tightening is unavoidable,though opinion polls send contradictory signals. On the one hand,two newspapers reported this week that more people favour a higher consumption tax than are against it. On the other hand,support for the DPJ,which doubled to about 40 per cent after Mr Kan took over from Mr Hatoyama,dipped this week after he mentioned the tax rise (see chart).
Happily for the DPJ,it is not alone in demanding higher taxes. The LDP and one marginal small party also call for a higher consumption tax in their manifestos. (Cunningly,Mr Kan has even refe-rred to LDPs proposal that the tax should double,to 10 per cent,as a reference point,without stating a figure of his own.)
Not only does this deflect some of the heat onto the DPJs rivals,but it may also put the DPJ in a stronger position after the elections. On todays voter preferences,political analysts believe the DPJ is likely to fall about five seats short of the additional 60 in the upper house that it needs for a simple majority (see table). But if other parties including the LDP believe a higher consumption tax is necessary,it may be able to draw on their support in a vote. That would forgo the need for a more formal coalition of the type that helped doom Mr Hatoyamas tenure.
Mr Kan has accompanied his partys manifesto with lengthy documents on fiscal reform and ways to rekindle sustainable economic growth after two decades of stagnation. Neither are particularly ambitious. The cut in the deficit from 6.4 per cent to 3.2 per cent is not envisaged before 2015,ie,three years after the administration must hold another general election. Its nominal GDP-growth targets are meagre. Even the consumption tax may not rise for two or three years,according to Mr Kan.
Some argue that the timing is not bold enough. However,for all that Japan needs strong economic leadership,there is a danger in being over-zealous on the public finances. Though the economy barrelled along at a 5 per cent annualised clip in the first quarter,it is still running well below capacity and remains dependent on exports to China. Wage growth is miserly. Some argue that even the DPJs plans to freeze spending at 2010 levels may be too austere for such a fragile economy.
More pressing than fiscal austerity,economists say,is the need to encourage a strong,well-balanced economy by deregulating inefficient industries and encouraging more investment. If not,the country will remain brutally exposed to the ups and downs of the global economy,and its efforts at fiscal prudence may come to nothing. That,Mr Kan might note,is the depressing 21st-century legacy of New Labours 20th-century sloganeering.