JAPAN: THE OPPOSITION'S GAS-FILLED RHETORIC

C O N F I D E N T I A L SECTION 01 OF 02 TOKYO 000233

SIPDIS

SIPDIS

USTR FOR AUSTR CUTLER, BEEMAN, AND MEYERS
PARIS FOR USOECD AND IEA
TREASURY FOR IA/DOHNER, HAARSAGER, AND POGGI

E.O. 12958: DECL: 01/30/2018
TAGS: ECON EFIN PGOV JA
SUBJECT: JAPAN: THE OPPOSITION'S GAS-FILLED RHETORIC

REF: TOKYO 141

Classified By: Ambassador J. Thomas Schieffer for reasons 1.4 b/d.

Summary
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1. (C) Fighting to allow the expiration of a "provisional"
gasoline tax (it began in the 1970s) and related tax
surcharges will be the opposition Democratic Party of Japan's
(DPJ) central issue in the current Diet session, DPJ Diet
member Yosuke Kondo told Embassy Tokyo January 23. The party
chose the tax as its headline issue, he said, because it is a
reform that is both popular and politically advantageous.
End summary.

Igniting Reform
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2. (C) Storied Japanese politician Kakuei Tanaka laid the
foundation for Japan's special road taxes (including gasoline
taxes) through bills he introduced in the 1950s, DPJ Diet
member Yosuki Kondo told the Embassy January 23, and they
have served as the basis for pork-barrel collusion among
politicians, bureaucrats, and construction interests ever
since. The tax system earmarks significant revenues for road
construction (5.1 trillion yen, or $46 billion at 110 yen to
the dollar, in FY2006) and has entrenched road spending as a
top budget allotment for decades.


3. (C) Japan's economic structure has changed fundamentally
over that time, however, and Kondo argued new tax and budget
structures should be matched to the needs of a globalized
economy. Changes to the road tax, he suggested, would only
be the beginning. If its entrenched interests could be
broken, wasteful defense spending and collusive bidding
practices could be attacked as well.


4. (C) Kondo added DPJ leader Ichiro Ozawa is the "perfect"
politician to spark those reforms. As the final apprentice
of Tanaka's political machine, Ozawa would be seen as
attacking his political benefactor's legacy. Kondo savored
the irony that, in pushing to maintain special taxes, Prime
Minister Fukuda would defend Tanaka's creation despite being
the son of Tanaka's fiercest political rival.

A Yamagata Focus Group
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5. (C) Kondo acknowledged the DPJ would also gain tactical
political advantage by letting the taxes expire, because the
ruling Liberal Democratic Party (LDP) has long used the road
taxes to cement support from construction interests. Kondo
played up the policy's popularity, however, noting DPJ leader
Ozawa decided to make it the party's central issue after
research revealed voters favored it in both rural and
metropolitan areas.


6. (C) Kondo recounted a "neutral" constituents' meeting in
his home prefecture of Yamagata, where he and the
prefecture's LDP governor faced off. The governor argued the
end of gasoline taxes would seriously affect the prefecture's
road construction and maintenance program, with dire
consequences within ten years. Kondo argued repeal of the
gasoline tax, given average car ownership and usage, would
put 70,000 - 80,000 yen per year ($640 - $730) back in a
household's kitty. He said the governor was surprised to see
80 percent of constituents raise their hands in favor of
lower gasoline taxes when asked to weigh the gas tax repeal
against a loss of road construction projects. The governor's
reaction only showed how out of touch many politicians are,
continued Kondo. There are no traffic jams in rural
Yamagata, and two lanes are plenty to pass the occasional
tractor -- what voter cares about more road improvements?

Special Interests Trump Regional Politics
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7. (C) Kondo admitted there are some dissenters in the DPJ,
but the party split is not between representatives of rural
and urban districts, as might be expected. Rather, he said

TOKYO 00000233 002 OF 002


the dissenters are DPJ members of the "road tribe" -- those
supported by the construction industry -- at the national and
local levels. Nonetheless, Kondo stated it is high time the
party take on the interests that support such an outdated
structure.

Comment
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8. (C) While it is easier to believe the DPJ is motivated
more by the popularity of letting gasoline taxes lapse than
by the policy's potential to spark significant structural
change, the reform rhetoric is interesting. Polls
consistently show a voter appetite for "reform" or "change"
(albeit undefined),and former PM Koizumi had great success
in 2005 with the narrative of running against entrenched
interests.


9. (C) There is also the possiblity the DPJ has
miscalculated, as the tax cuts might prove unpopular if
localities suffer a drop in revenue. The "provisional" gas
tax raises about 2.6 trillion yen ($24 billion) per year,
which is about one-third of national road outlays proposed in
the FY2008 budget. Moreover, localities, which receive
directly around 900 billion ($8.2 billion) of the threatened
gasoline tax revenue, are already protesting loudly. Citizen
complaints too have risen markedly, particularly after the
government released a detailed "hit list" of road projects to
be scrapped if the gas tax bill is defeated -- including
repairs to bridges and installation of guard rails and
sidewalks on roads children use to get to school. Cutting
the gas tax, at first look a popular move, may prove to be a
negative for the DPJ if the party gets blamed for
undercutting what most Japanese view as needed services.

SCHIEFFER