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JAPAN: Spend-and-defend manifesto continues LDP’s buy now, pay later approach

Table of Contents

  • The ruling LDP’s Lower House election manifesto contains new policy emphases in several areas including the economy, health crisis response, and energy, but omits key proposals in each area.
  • On foreign policy, there are notable developments relating to Taiwan, China, and defense spending, but vague language avoids concrete commitments.
  • The take-aways are that Kishida does not appear eager for tough political battles, that the spend-and-defend right wing of the party has major influence over both domestic and foreign policy agendas, and that the continuation of the LDP’s traditional’buy now, pay later’ approach could portend friction with the finance ministry.

Critics charge that new Prime Minister Fumio Kishida has rarely encountered a challenge that he was not willing to turn away from. They will hold up the first week of his premiership as further evidence of this, after an about-turn on raising the capital gains tax and a shift in overall policy emphasis from income distribution to economic growth. Kishida says this shows he has “the power to listen,” but it does little to allay concerns about his grit for the tough job of reforming Japan’s quagmired economy.

With the Diet now dissolved ahead of the 31 October Lower House election, Kishida’s first manifesto as prime minister is as interesting for what it omits as what it includes. Under the gossamer banner of building’a new form of capitalism’, it promises economic growth to rebuild the middle class with support for sectors such as robotics and semiconductors and a push for digital transformation to help revitalize regional economies, but no real strategy to address the core question of how productivity might be raised. On income (re)distribution, corporations will be encouraged to raise wages via tax incentives (as former prime minister Shinzo Abe attempted) and there will be support for small and medium enterprises (SMEs) and an emphasis on stakeholder capitalism rather than a shareholder focus, but the mooted rise in the flat- rate 20% tax on investment-derived income is absent for now, following blow- back from the financial sector. There’s also a fine-sounding aspiration to make Japan a global hub for finance.

On Covid-19, there are useful measures to strengthen the government’s powers during a public health crisis including boosting capability to secure medical beds and resources and measures to increase domestic drug and vaccine production, but nothing on a proposed new Health Crisis Management Agency. On social security for all generations (another Abe-esque theme), there are policies related to daycare and child allowances, but nothing on the promised childcare agency. On energy policy, Kishida has reiterated the Suga administration’s 2050 target of carbon net zero and hopes to ramp up nuclear power generation to that end, but his first policy speech notably failed to mention the interim 2030 emissions reduction target, and the indications are that he may not prioritize this issue as much as his predecessor.

On the foreign policy and defense agendas, there are some notable developments. The manifesto trumpets the Free and Open Indo-Pacific concept and upholding universal liberal democratic values. It again underlines partnerships with the US, the Quad, ASEAN and Europe, but goes further than before by also mentioning Taiwan and endorsing its desire for CPTPP membership and WHO observer status. China is the unnamed target of references to addressing issues that relate to Japanese interests, such as regional military build-up and unilateral attempts to change the status quo. Kishida follows through on his leadership campaign pledge to boost the Coast Guard’s capabilities and integration with the Self Defense Forces (SDF) and promises game-changing new technologies for the SDF and improved missile deterrence, but there is no explicit commitment to acquire strike missile capabilities.

A general promise to raise defense spending is flagged in the manifesto and a supporting document re-states it adjacent to a reference to the 2% of GDP expenditure target of NATO nations, but a careful reading of the text shows no firm commitment to doubling spending. This points to a smaller increase above the 1% threshold and perhaps a reclassification of Coast Guard expenditure as part of the general defense budget. The overall tenor of these policies is more hawkish than under Shinzo Abe. Kishida has already begun steps towards updating Abe’s 2013 National Security Strategy, which centered Japanese policy on’a proactive contribution to peace,’ to address the changed context in relation to China and also North Korea.

Finally, there is a call for constitutional revision — ultimately towards a new constitution, but in the interim at least, updating the current one to better meet the demands of the times. Here the manifesto echoes Abe-era proposals for giving a constitutional basis to the defense forces, special emergency powers for government, and electoral and education-related amendments. Kishida has spoken of realizing these revisions quickly, but in practice they remain aspirational and could be seen as paying lip-service to one of the right wing’s major ambitions.

Take-aways

There are three takeaways from the manifesto as a whole. One is that Kishida is not yet willing to take on major challenges that would require expanding a lot of political capital, hence the choice to delay capital gains tax revision and other key policy proposals. A second is the influence of the right wing on both domestic and foreign policy agendas. Kishida was formerly known as a fiscal hawk and foreign policy dove and comes from a party faction that prioritized the economy over military matters or constitutional revisions, but he has recalibrated all these positions to align with the spend-and-defend right wing that is now the party mainstream.

The third is that Kishida intends to govern in the’buy now, pay later’ tradition of previous LDP governments. Indeed, despite the broad range of major spending plans and a promise to make use of zero interest rates and the supplementary Fiscal Investment and Loan Program (FILP) money pot, there are no proposals at all to boost tax revenue. This could well cause friction with the Ministry of Finance, whose top bureaucrat this week took the remarkable step of writing an op-ed in a monthly magazine criticizing political parties’ lavish spending plans. The macroeconomic concern going forward is that Kishida will lack the will or the grit to drive the productivity and tax reforms necessary to make such an agenda fiscally sustainable in a low-growth, depopulating economy.

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JAPAN: Spend-and-defend manifesto continues LDP’s buy now, pay later approach

The ruling LDP’s Lower House election manifesto contains new policy emphases in several areas including the economy, health crisis response, and energy, but omits