Japan Opposition Unveils Campaign Pledges

The Canadian Press

DPJ Promises to Stimulate Spending, Shift Power to Lawmakers
By TAKASHI NAKAMICHI

TOKYO -- The opposition Democratic Party of Japan, which looks likely to win a general election next month and form a new government, unveiled Monday an election manifesto promising to stimulate consumer spending and shift policy-making power from bureaucrats to lawmakers.

The DPJ's release of its campaign pledges comes as analysts closely watch to see how the party may govern if it wins key lower-house polls planned for Aug. 30.

Based on its campaign pledges, the costs of the economic measures would amount to ¥7.1 trillion ($74.7 billion) in the coming fiscal year starting April, expanding in subsequent years to ¥16.8 trillion in fiscal 2013.

The DPJ says it would get the funds mainly by eliminating wasteful public spending and using government reserves rather than by lifting taxes.

While many of the promises -- ranging from cash aid for families with children to free public high-school education and the abolishment of highway tolls -- may be popular with voters, their potential to heal the recession-stricken economy appears uncertain.

If the DPJ follows through with its pledges, inflation-adjusted growth in the current fiscal year could fall by 0.2 percentage point to about minus 3%, said Toshihiro Nagahama, senior economist at Dai-Ichi Life Research Institute. That is because "the party seems to be planning to freeze part of the public works projects underway" to save money.

Still, in the next fiscal year, the DPJ measures could boost growth by 0.3 percentage point to around 1.5% by lifting consumption, he said.

Seiji Adachi, senior currency analyst at Deutsche Securities, took a more cautious tone.

He said that if the DPJ goes ahead to reduce existing tax exemptions to enable more public spending, middle-aged or older people may suffer declines in household income, even as lower-income families benefit from income redistribution.

"The overall impact would be limited or perhaps negative on a net-basis," Mr. Adachi said.

The DPJ's flagship proposal is a monthly allowance to be paid per child until he or she graduates from middle school, or the ninth grade. The allowance would start at ¥13,000 in the fiscal year beginning April 2010 and rise to ¥26,000 the following year.

Other consumer-friendly steps include: scrapping highway tolls by fiscal 2012, waiving tuition for public high schools from next fiscal year, abolishing temporary surcharges on gasoline and other road-related taxes from fiscal 2010, and reinforcing the unemployment safety net.

Measures to boost the strained social security system include plans to increase the number of doctors and build a tax-funded pension system offering a minimum of ¥70,000 every month per person.

In fiscal 2013, when all the DPJ's envisioned measures would be fully in effect, the total policy costs would reach ¥16.8 trillion, around 3.4% of last year's inflation-adjusted gross domestic product.

DPJ steps that could potentially weigh on the corporate bottom line include a 25% cut in greenhouse gas emissions by 2020 from 1990 levels -- more ambitious than the current government's 8% reduction target.

The DPJ also wants to strengthen protection of part-time workers, while raising the average minimum hourly pay to ¥1,000 -- steps that could backfire if they discourage the hiring of temporary employees, analysts say.

Yet the party also proposes to lower the tax rate for small companies to 11% from the current 18%.

Economists worry that if the DPJ's revenue plan fails, the economy could suffer should the government sell more bonds to raise money, causing long-term interest rates to climb.

Any worsening in economic conditions in the coming months could also fuel anxiety over additional government borrowing.

Masayuki Naoshima, head of the DPJ's research committee, said at a news conference Monday that a DPJ government might sell deficit-financing securities to pay for stimulus measures if the economy deteriorates more.

Nor can the prospect of tax increases be entirely ruled out, DPJ Chief Yukio Hatoyama said at the same press conference. He said the debate could be opened on whether to raise the 5% consumption tax for the coming four years, changing his previous stance that there would be no debate.

The DPJ also laid out five principles of governance in its manifesto, vowing to demolish the deeply entrenched policy-making structure in which elite but unaccountable bureaucrats have traditionally held the upper hand over politicians.

The goal is to bring about "politics of the people, by the people, for the people," Mr. Hatoyama said at the press conference. "No more politics of the bureaucrats, by the bureaucrats, for the bureaucrats."

One of the manifesto's strategies is to have about 100 party legislators oversee policy-making. Another is to establish a new entity, dubbed the national strategy bureau, to outline a national budget under the prime minister's direct supervision, thus depriving the powerful finance ministry control over budget-making.

Write to Takashi Nakamichi at takashi.nakamichi@dowjones.com