While the political situation following the LDP presidential election was chaotic, as of this writing, there is a growing atmosphere suggesting the birth of a Takaichi administration supported by a coalition between the LDP and Nippon Ishin no Kai (Japan Innovation Party). Historically, in terms of fiscal policy, Ishin has been among the worst parties—on par with, or perhaps even exceeding, the LDP-Komeito and CDP blocs. What makes them particularly problematic is that they operate under the guise of a “reformist” party.
If you search for “Ishin” and “fiscal reconstruction,” you will find their web pages regarding fiscal policy. One statement reads: “The consumption tax hike to 10%, which demands a burden from the public, should be predicated on ‘cutting one’s own flesh’ (administrative reforms) and sufficient expenditure cuts; until then, the hike should be frozen.” This policy likely dates back to sometime between 2014 and 2019, when the tax rate was 8%.
Old media outlets and so-called mainstream economists would likely praise this phrasing, saying, “While the LDP-Komeito only scatters money, Ishin is a responsible party that considers fiscal health.” However, as readers of this blog know, this is a classic fallacy of composition. They are suggesting that in an economy suffering from deficient demand, one should cut spending first, and only then would tax hikes be justified. This is sheer madness, and it shows a complete lack of understanding regarding the role of seigniorage (the profit made by a government by issuing currency). It is the worst kind of austerity, a direct inheritance of the Koizumi structural reforms. Such a policy might be somewhat justifiable for the Osaka prefectural government, which does not possess seigniorage (though I am relatively soft on them; true fiscal expansionists usually scathingly criticize their austerity even at the local level).
Their high priority on reducing the number of Diet seats stems from the exact same context. While the “appropriate” number of legislators is not easily determined, they seem to have no deep thoughts on the matter, merely operating under the delusion that cutting expenditure is an inherent virtue. The labor costs of a few dozen Diet members are a mere rounding error; as long as they implement good policies, the cost is irrelevant.
Since other parties also have issues with fiscal policy, it might be harsh to blame only Ishin. It is possible that as they interact with the Democratic Party for the People (DPFP) and those around Ms. Takaichi, the number of Ishin members who understand fiscal expansionism may increase. I strongly hope they take a stance where, if their proposals—such as the “Deputy Capital” concept or the reduction of Diet seats—are accepted, they will leave the fiscal policy entirely to Takaichi’s LDP.
Still, an LDP-Ishin coalition led by Takaichi… I honestly don’t know if such an alliance can last. Ideally, they should have partnered with the DPFP, which ought to be the cornerstone of the fiscal expansionist camp. One wonders what on earth that party is doing, drifting aimlessly as it is.
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