[talk] Can the Koizumi Administration Realize a Strategic Taxation Reform?

Susumu Takahashi: Head of the Economics Department of the Japan Research Institute, Limited

Susumu Takahashi was born in Tokyo in 1953. He graduated from the School of Economics at Hitotsubashi University and joined Sumitomo Bank in 1976. He accepted a position at the Japan Research Institute in 1990 and is now the Head of the Economics Department at the same institute. He became a visiting professor at the College of Economics at Ritsumeikan University in 1998, and a visiting professor of the Graduate School of Asia-Pacific Studies at Waseda University in 2000. He currently holds positions as an Advisory Group Member of the Ministry of Finance, a Member of the Financial Research Conference of the Japan Fair Trade Commission and a Member of Immigration Control Policy Conference in the Ministry of Justice. He appears on the Television Tokyo program, “World Business Satellite.

Yasuyoshi Masuda: Professor for the Economics Department at Toyo University

Yasuyoshi Masuda was born in Tokyo in 1958. He joined Fuji Bank after graduating from the Faculty of Economics at Kyoto University, and assumed positions in the Research Department and others. He joined the Fuji Research Institute Corporation in 1988. After gaining experience in positions such as the General Manager of the London Office, he became the Chief Economist in April of 2001. He has been a professor for the Faculty of Economics at Toyo University since April of 2002. His major published works include Tettei Yosoku Nihon Keizai Korekara Juunen (Thorough Forecast of Japanese Economy’s Future in Ten Years) and Kin’yu Kaikoku (Opening of Japan in the Area of Finance).

Robert Feldman: Morgan Stanley’s Chief Economist for Japan

Robert Alan Feldman, born in 1953, He graduated from Yale University and received a Ph. D. in Economics from MIT. He joined Morgan Stanley after working for the Federal Reserve Bank of New York, IMF, etc. His published works include Nihon No Suijaku (The Weakening of Japan) and Nihon No Saiki (Starting Over). Institutional Investor magazine ranked him at the top of their “All-Asia Research Team Poll.

Jesper Koll: Chief Economist at Merrill Lynch Japan

Jesper Koll graduated from Johns Hopkins University. He joined OECD in 1984, later went on to work for JP Morgan, and then served as a Managing Director at Tiger Management LLC. He joined Merrill Lynch Japan in 1999. He has been in charge of investigating the state of the Japanese economy and participating in the planning of suggestions on policies in the governmental advisory council, such as the Industrial Finance Subcommittee of the Ministry of Economy, Trade and Industry. His major published works include Towards a New Japanese Golden Age. He also writes for a number of Japanese and foreign magazines and newspapers.

The discussion started with Mr. Takahashi's statement that fundamental taxation reform is necessary from three perspectives: an approach towards sound public finance, stimulation of the economy, and preparation for an aged society. Following this statement, Mr. Masuda responded, fairness and neutrality in taxation must be maintained, so short-term measures to stimulate the economy or an approach towards sound public finance and the issue of taxation structure must be discussed separately.
Mr. Koll raised a question to this issue: First of all, is there any strength left in the Koizumi Administration to launch any fundamental taxation reform? He showed concern that if any halfway measure for reform is suggested in this situation, the public’s disappointment will be greater yet.

As for the current standoff, in which the Council on Economic and Fiscal Policy, the Tax Research Commission and the Tax Commission of LDP each has a different approach to taxation reform and the discussion does not come to an agreement, Mr. Feldman pointed out that the reason is attributed to the confusion of principles and decision-making mechanisms. That is, the ambiguity of the terms simplicity, neutrality and fairness, which have been held up as the canons of taxation for many years, and the three-tiered structure of decision-making comprising the government, the Ministry of Finance and the party, are hindering the achievement of fundamental reform.

Taxation reform is inseparable with the issue of the grand design of the future of Japan. However, the opinion from Mr. Takahashi, consensus about the future of Japan may not be reached even among the Cabinet members, not to mention the public, was concurred by all of the other three. The discussion arrived at the conclusion that the only remaining alternative which Prime Minister Koizumi can take is to show the public the vision of the reform including taxation and seek a general election that would let the voice of the people be heard on such vision.

As can be seen in the cases of the Reagan and Thatcher Administrations, it will generally take three to five years for a taxation reform to be brought to realization. Of course it will take more time to fix the individual matters such as the rates of corporate tax and consumption tax, setting a vision for the basic policy of the reform should not be so time-consuming. The government must present this vision as soon as possible, for time is running out for Japan. Also, the administration must win the public’s support in order to stabilize its foundation and start with implementing the reform. This point was also met with consensus among the four.