[interview] Radical Reform under Deflationary Condition May Have Reverse Effect

Hiroshi Kato: President of Chiba University of Commerce, Emeritus Professor of Keio University

Hiroshi Kato was born in 1926. He graduated from the Economics Department of Keio University in 1950 and became a professor at the same Economics Department in 1966. In 1990, he assumed a position as professor and dean of the Policy Management Department of the same, and became an emeritus professor in 1994. He has been serving as the president of Chiba University of Commerce and Chiba Junior College since 1995. He specializes in comparative economics, public economy analysis and holds a doctorate degree in Economics. His major published works include Boukoku No Housoku (Rule of Ruining Nations), Kan No Hassou Ga Kuni Wo Horobosu (Bureaucratic Ideas Destroy Countries), etc.

We interviewed Mr. Hiroshi Kato, President of Chiba University of Commerce, who has served as Chairman for the Tax Research Commission for ten years since 1990. He had promoted the privatization of JNR and NT&T when he was the Chairman of the 4th Subcommittee of the 2nd Ad Hoc Commission on Administrative Reform (also called Doko Rincho). Prime Minister Koizumi was his student when Mr. Kato was teaching in the Economics Department of Keio University.
Four months had passed since its start this January, but the discussion of taxation reform has gotten completely tangled. Mr. Kato says that this is because Prime Minister Koizumi had ordered radical taxation reform to both the Council on Economic and Fiscal Policy and the Tax Research Commission. The Council on Economics and Fiscal Policy, which is supposed to be in charge of summarizing the middle- and long-term basic policies, is now also involved in the detailed short-term design of institutional arrangements and has therefore clashed with the Tax Research Commission, which was originally serving this kind of role.

Furthermore, discussion of taxation reform involves not only the Council on Economic and Fiscal Policy and the Tax Research Commission, but also the Tax Commission of the LDP, Tax Commissions of the ruling parties, the Ministry of Finance, and even the Prime Ministers Official Residence. Although it should not be an easy job to adjust to the different opinions, this situation calls for Prime Minister Koizumi to exercise his leadership. However, Mr. Kato sees that the Prime Minister does not show this kind of leadership at all in his words or in his actions. I suspect that because he lacks confidence in taxation, he simply adopted the idea of Heizo Takenaka such as in the case of the stimulation of economic activity, and he himself does not have any original ideas in the policy or concept of reform.

The general consumption tax of the Ohira Administration, sales tax of the Nakasone Administration, and national welfare tax of the Hosokawa Administration there are many cases in the past in which a collapse of taxation reform shook a certain administration to its foundation. Considering the current situation where the reforms of the Public Roads Administration and postal service are not progressing as expected, the foundation of the Koizumi Administration will be even more vulnerable if taxation reform falls into further chaos. Mr. Kato says, Radical reform under deflationary condition may have a reverse effect. He points out that it is currently a top priority for the economy to build up enough strength to lift its head above water, and one would be better off using taxation for it. He is now discussing this kind of policy in the commission organized by him to serve as a shadow Tax Research Commission, and is planning to submit the policy to Mr. Takenaka by the end of June.