JAPAN: A MEDIA LOOK AT TAX REFORM

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP90T00100R000201230001-5
• Release Decision: RIPPUB
• Original Classification: C
• Document Page Count: 6
• Document Creation Date: December 27, 2016
• Document Release Date: August 8, 2013
• Sequence Number: 1
• Publication Date: May 9, 1988
• Content Type: MEMO

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DATE
DOC NO iiii 26614
OIR
PD
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Central lntdligence Agency
4,13zumil
Washington?. C20505
DIRECTORATE OF INTELLIGENCE
09 May 1988
Japan: A Media Look at Tax Reform
Summary
The Japanese media are spotlighting the contentious issue of tax
reform, which Prime Minister Takeshita has put at the top of his legislative
agenda for 1988. Mindful of Takeshita's predecessor's problems in trying
to enact an indirect tax last year, the press is scrutinizing the new Prime
Minister's efforts to build a public consensus. Commentators appear to
believe Takeshita's current go-slow strategy will pay off. At the same
time, should the ruling party's final tax blueprint, to be announced
sometime this summer, anger the electorate, observers believe Takeshita
will retract the plan quickly.
This memorandum was prepared by Office of East Asian Analysis.
Information available as of 9 May 1988 was used in its preparation. Comments and
queries are welcome and may be directed to the Chief, Japan, Northeast Asia, 0EA,
EA M 88-20066
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Laying the Groundwork
The Japanese media are giving extensive coverage to Takeshita's attempts to
complete the overhaul of Japan's tax system that former Prime Minister Nakasone began
last year. In particular, journalists are scrutinizing Takeshita's efforts to secure approval
of a broad-based indirect tax that will ensure sufficient government revenues for social
welfare expenditures as the population ages. The press is playing the indirect tax as an
issue where Takeshita can outshine his predecessor, who was dealt a political setback
last spring when he was forced to drop his plan for a value-added tax.
Mindful of the problems caused by Nakasone's failure to get the public and the
ruling party on board before introducing the legislation, Takeshita is proceeding slowly.
He has already cleared one hurdle by gaining solid party backing for the concept of an
indirect tax. Even so, the party has not come up with specifics. The slow pace reflects
the party's earlier desire to ensure that the fiscal 1988 budget, making its way through
the legislature this spring, did not become the 0000sition's hostage to tax reform--a
tactic the opposition used last year.
Even though the budget passed in April, party leaders believe a slow approach is
still in order, according to various press reports. A measured pace allows the party to
send up "trial balloons," helping it fashion specifics the public will approve. At the same
time, the LDP's leisurely timetable--with an interim report not due until May--has
allowed nationwide public hearings in which prominent academics, politicians, and
business leaders have spoken out. The party considers these hearings a way to assess
and influence the public's views. Media observers believe the strategy is paying off.
Those testifying at the hearing questioned the need for the tax's introduction in the near
term, although they generally were receptive to the idea.
Ruling party heavyweights--some of whom may be trying to garner Takeshita's
favor in anticipation of an autumn reshuffle of Cabinet posts--are giving speeches and
interviews to build momentum behind an indirect tax. Leaders who frequently speak in
support of tax reform include former LDP Tax Research Council chairman Masayoshi
Ito--also the chairman of the Executive Council and the Bipartisan Tax Research
Committee--and Secretary General Shintaro Abe. Policy Affairs Research Council
chairman Watanabe's efforts have also received extensive press play. He is popular not
only with the media but with the public, in large part because of his folksy campaign
style. For example, during a recent speech to junior LDP members, Watanabe insisted
that "...persuading the people to accept a new indirect tax is like seducing a woman...first
send her flowers, take her to a restaurant, and most of all communicate with her,
perhaps writlnirto her personally...you must know the art of coaxing..."
Cause For Optimism
The LDP's effort to build a national consensus on tax reforms appears to be
working, according to various comments by Japanese observers:
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? Journalists are playing up the need for such a tax in editorials. The media's
positive attitude has been instrumental in shaping popular opinion, in our view.
? The improved prospects for tax reform can be seen in a recent newspaper poll.
Four-fifths of those polled saw a need to reform the current "unfair" tax system.
The 21 percent who indicated their support for a new indirect tax was
considerably higher than the 7 percent who supported an indirect tax last year.
? With the exception of wholesalers and retailers, the overwhelming majority of
business community leaders support a new indirect tax.
? Organized labor is positive about an indirect tax, believing that its enactment will
be accompanied by large income tax cuts. As a result, opposition parties closely
affiliated with major unions appear less committed than they were last year to
blocking an indirect tax.
Willing To Reconsider
All these factors have led commentators to conclude that the prospects for
passage of an indirect tax this year are fairly good. To meet the deadline, the party
must issue its final recommendation by July. This would permit serious debate and
bargaining with the oi position camp to begin during a special summer Diet session. )
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Although optimistic, the Prime Minister, according to press reports, has developed
a fallback plan. If the public reacts negatively to the final blueprint, he is ready to drop
the indirect tax this year. LDP leaders are already laying the groundwork for such a
retreat. Former Secretary General Kanemaru, for example, recently said that there is "no
need for the ruling party to force its way to pass tax reform bills this year--"after all
Japan will not go bankrupt because it did not reform the outdated tax system."
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December 1984
June 1986
December 1986
April 1987
November 1987
January 1988
Japan: Tax Reform Chronology
In his Diet opening speech, then Prime Minister
Nakasone announces his plan to overhaul the post-war
taxation system.
Nakasone declares he "has no plan to introduce
a large scale indirect tax which party members and
the public oppose."
The Liberal Democratic Party approves a tax reform
plan including bills to introduce value-added tax and
to abolish the "Maruyu system" of tax-free postal
savings system.
Value-added tax bill scrapped after being attacked by
public and opposition parties; other tax reforms
reintroduced--and passed--during a special Diet session a
few months later.
In his Diet policy speech, new Prime Minister
Takeshita announces his plan to review tax reform
issues, including introduction of an indirect tax.
The 112th Regular Diet session convenes: In his
policy speech, Takeshita lists tax reform as his
top priority, and announces his goal of building a
solid consensus on the issue.
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JAPAN: A MEDIA LOOK AT TAX REFORM
DISTRIBUTION:
SENIOR POLICYMAKERS
1 - DONALD GREGG, ASSISTANT TO THE VICE PRESIDENT FOR NATIONAL
SECURITY, RM 298,
DEPARTMENT OF STATE
1 - FRANK DAVENPORT, INR/EAP/JAPAN, RM 8840,
1 - DAN MORRIS, INR/EAP/JAPAN, RM 8840,
1 - TIM FOSTER, DEPUTY DIRECTOR, OFFICE OF JAPANESE AFFAIRS, RM 4210,
DEPARTMENT OF DEFENSE
1 - LTC. JERRY WILLIAMS, JSI-3C, RM 1C930,
1 - CDR. (RET) JAMES AUER, OASD/ISA/EAPR, RM 4C836,
1 - RON MITCHELL, DB-4E, RM B4151,
COMMERCE DEPARTMENT
1 - MAUREEN SMITH, DEPUTY ASSISTANT SECRETARY FOR JAPAN, RM 2320,
1 - KIM FITZGERALD, OFFICE OF INTELLIGENCE LIAISON, RM 6854,
OFFICE OF THE USTR
1 - LYNN TRESSLER, INTELLIGENCE LIAISON, RM 123,
DEPARTMENT OF TREASURY
1 - RANDALL FORT, OFFICE OF SPECIAL ASST. TO THE SECRETARY FOR NAT'L
SECURITY, RM 4324,
OTHER
1 - HENRY NATHAN, CHIEF, G911, RM 1A-187,
INTERNAL
1 - DDI, RM 7E44,
1 - NIO, EAST ASIA, RM 7E62,
1 - NIO, ECONOMICS, RM 7E47,
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1 - CHIEF, PPS/DO, RM 3001,
1 - CHIEF, EAF?IRM 5026,
1 - CHIEF, OEA/NEA/JAPAN, RM 4G31,
1 - CHIEF, OEA/NEA/KOREA, RM 4G43,
1 - CHIEF, OEA/NEA/STI, RM 4G43,
1 - CHIEF, OEA/NEA/DIVISION, RM 4G43,
1 - CHIEF, ?EA/CHINA DIVISION, RM 4020,
1 - CHIEF, 0EA/SEA DIVISION, RM 4F24,
1 - CHIEF, ?EA/PRODUCTION, RM 4G48,
1 - DIRECTOR, OFFICE OF EAST ASIAN ANALYSIS, RM 4F18,
1 - CHIEF, FBIS/NEAD, RM 1N07,
1 - SENIOR REVIEW PANEL, RM 5G00,
1 - OCA REGISTRY, OFFICE OF CONGRESSIONAL AFFAIRS RM 7B24,
1 - POB STAFF, RM 7F30,
1 - CHIEF, LDA/EAD/AB, RM 1H18,
6 - CONTROL BRANCH, OFFICE OF CURRENT PRODUCTION AND ANALYTIC
SUPPORT, RM 7G07,
1 - 1NTELL. SUPPORT STAFF, OFFICE OF CURRENT PRODUCTION AND ANALYTIC
SUPPORT, RM 7G50,
1 - INTELL. LIAISON STAFF, OFFICE OF CURRENT PRODUCTION AND ANALYTIC
SUPPORT, RM 7G50,
1 - CHIEF, PRODUCT EVALUATION STAFF, RM 2F42,
1 - NIC, ANALYTIC GROUP, RM 7E47,
1 - CHIEF, DDO/EA DIVISION, RM 5000,
1 - CHIEF, DDO/EA RM 5C45,
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