VZCZCXRO2980
PP RUEHFK RUEHKSO RUEHNH
DE RUEHKO #1193/01 1221048
ZNY CCCCC ZZH
P 011048Z MAY 08
FM AMEMBASSY TOKYO
TO RUEHC/SECSTATE WASHDC PRIORITY 3903
INFO RUEHBJ/AMEMBASSY BEIJING 3104
RUEHBY/AMEMBASSY CANBERRA 2608
RUEHMO/AMEMBASSY MOSCOW 2258
RUEHUL/AMEMBASSY SEOUL 9119
RUEHFK/AMCONSUL FUKUOKA 7566
RUEHNH/AMCONSUL NAHA 9953
RUEHOK/AMCONSUL OSAKA KOBE 1245
RUEHKSO/AMCONSUL SAPPORO 8161
RHEHAAA/NSC WASHDC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/TREASURY DEPT WASHDC
RUEHIN/AIT TAIPEI 6998
RHHMUNA/HQ USPACOM HONOLULU HI
RUEAIIA/CIA WASHDC

C O N F I D E N T I A L SECTION 01 OF 03 TOKYO 001193 
 
SIPDIS 
 
SIPDIS 
 
STATE PASS USTR FOR CUTLER, BEEMAN 
TREASURY FOR IA - DOHNER, POGGI 
NSC FOR TONG 
COMMERCE FOR 4410/ITA/MAC/OJ 
 
E.O. 12958: DECL: 05/01/2018 
TAGS: ECON EFIN ENRG PGOV JA
SUBJECT: CONSUMERS CALM AS FUKUDA REINSTATES THE GAS TAX 
 
REF: A. TOKYO 1148 
 
     ¶B. TOKYO 1076 
     ¶C. TOKYO 0892 
     ¶D. FUKUOKA 0027 
 
Classified By: Amb. J. Thomas Schieffer. Reason: 1.4 (b,d) 
 
Summary 
------- 
 
¶1.  (C)  Gas prices are going back up in Japan after the 
government re-instated the gasoline and other road-related 
taxes April 30, despite the predicted opposition from the 
Democratic Party of Japan.  Attention now turns to a vote on 
May 12 or 13 to pass legislation governing earmarks on the 
reinstated revenue.  Because the loss in revenues caused by 
the lapse in the gasoline tax was short-lived -- only one 
month -- the economic impact is expected to be fairly 
minimal.  End summary. 
 
Lower House Override Reinstates Gas Tax 
--------------------------------------- 
 
¶2.  (C)  Ruling coalition leaders pushed through a bill to 
re-instate the "provisional" gasoline and other road-related 
taxes on April 30, despite opposition Democratic Party of 
Japan (DPJ) attempts to portray the ruling Liberal Democratic 
Party's (LDP) loss in an April 27 Lower House by-election as 
a referendum on the issue.  Initially, at least, the move 
appears to have paid off, as the opposition parties seem 
unable to galvanize the public around the issue.  The DPJ 
boycotted the April 30 Lower House plenary re-vote and backed 
down from threats to cast an Upper House censure motion over 
the ruling coalition's "heavy-handed" tactics to "ignore" the 
popular will.  Their public standing may also have been 
weakened by well publicized splits within the DPJ over 
opposition to the taxes.  That may change over time, as 
gasoline prices slowly rise again.  Still, in a positive sign 
for the Fukuda government, reports of rising gas prices on 
May 1 shared the front pages with stories of local 
governments preparing to un-freeze their budgets in 
anticipation of the renewed revenues. 
 
¶3.  (C)  Prime Minister Fukuda has been committed to passing 
a bill to re-instate the taxes despite his sagging cabinet 
support rate and popular opposition to the taxes.  The Lower 
House originally passed the measure to re-instate the 
provisional road-related taxes on February 29, but the Upper 
House refused to act.  The taxes lapsed when the existing 
legislation lapsed on March 31.  Attempts at a compromise 
bill, meanwhile, fell flat in the face of continued 
opposition insistence on eliminating the 30-year-old 
"provisional" gasoline and road-related taxes entirely, 
despite PM Fukuda's willingness to end road construction 
earmarks beginning in FY 2009. 
 
¶4.  (C)  In the weeks since, the opposition parties have held 
the bill in the Upper House, essentially refusing to 
deliberate on the merits or introduce their own 
counterproposal.  Under the Constitution, a bill can be held 
for up to 60 days in the Upper House, after which it is 
considered rejected and can be passed into law by a 
two-thirds majority re-vote in the Lower House.  This 
instance is the first time in 56 years that the Lower House 
has taken a second vote on a bill held by the Upper House. 
In January of this year, the Lower House used the two-thirds 
override to pass legislation authorizing resumption of 
refueling operations in support of Operation Enduring 
Freedom, but only after the bill had been voted down on the 
last day by the Upper House.  Somewhat ironically, the LDP is 
now making noises about censuring Upper House President 
Satsuki, who hails from the DPJ, for allowing the gas tax 
bill to sit for 60 days. 
 
TOKYO 00001193  002 OF 003 
 
 
 
¶5.  (C)  Attention now turns to another potential Lower House 
re-vote on May 12 or 13 to pass legislation governing 
earmarks for several of the road-related taxes.  The 
opposition is once again threatening a censure motion in 
return.  Fukuda's unilateral proposal in March to meet the 
DPJ halfway by incorporating the taxes into general revenue 
beginning in FY2009 was initially opposed by entrenched 
road-construction interests in the LDP.  At one point, the 
issue seemed poised to split the LDP, as the "road tribe" 
faced off against younger, more reform-minded LDP elements 
seeking the kind of genuine road-related tax reform that had 
eluded even Prime Minister Koizumi.  Instead, Fukuda 
mollified pro-earmark lawmakers by inserting language 
preserving funding for "necessary" road projects, while 
staving off the reformers by sticking to his pledge to 
eliminate the earmarks completely in FY2009. 
 
Markets and Consumers Calm as Prices Jump 
----------------------------------------- 
 
¶6.  (SBU)  Consumer reaction to the re-imposition of the 
gasoline tax has been calm.  According to the National 
Federation of Petroleum Commercial Associations -- one of the 
main industry groups for gasoline retailers -- some major 
filling stations' supplies had run out on the evenings of 
April 29 and 30 as consumers took their last opportunity to 
buy cheap fuel.  However, the industry in general was 
prepared for the last minute rush.  Tokyo gasoline prices as 
of opening of business on May 1 had risen about JPY 30 per 
liter, the Federation official indicated.  A Nikkei poll of 
gasoline retailers indicated about two-thirds of service 
stations would raise prices JPY 30-34 per liter while less 
than 10 percent would post an increase of JPY 35 or more. 
The Federation official added high wholesale prices for 
gasoline, in addition to the renewed JPY 25 per liter tax, 
contributed to the jump in prices. 
 
Many Retailers Seeking Government Assistance 
-------------------------------------------- 
 
¶7.  (SBU)  An official of the GOJ's Agency for Natural 
Resources and Energy (ANRE) told us May 1 a number of 
gasoline retailers have already taken advantage of 
government-provided financial assistance aimed a mollifying 
the business impact of the sudden fluctuation in prices. 
According to the ANRE official, the agency has received over 
1400 inquiries into a program to subsidize interest payments 
on bank loans for service station owners since the program 
went into effect on April 21.  In addition, 116 firms have 
inquired about a separate debt guarantee program in place 
since April 1.  ANRE will maintain its loan guarantee program 
until the end of the current fiscal year (March 31, 2009) and 
plans to terminate the interest subsidies in September this 
year. 
 
Little Expected Economic Impact of Renewed Tax 
--------------------------------------------- - 
 
¶8.  (SBU) The lapse and relatively quick re-imposition of the 
taxes limits the economic impact.  Consumer price inflation 
for Tokyo in April was 0.6 percent, despite the fall in the 
retail price of gasoline, due to higher commodity and other 
prices.  Nationwide CPI figures for April will not be 
available until the end of May, but market analysts expect 
CPI to be approximately 0.3 percentage points lower due to 
the elimination of the taxes, and then rise by a similar 
amount in May due to the reinstatement. 
 
¶9.   (SBU) Another impact will be the loss of one month,s 
revenue from the taxes for the central and local governments, 
about 180 billion yen ($1.75 billion).  However, the 
government is likely to attempt to find cost savings in its 
 
TOKYO 00001193  003 OF 003 
 
 
road construction projects or delay costs into next fiscal 
year, to avoid any impact from these events on the fiscal 
deficit.  At a time when slower growth in corporate profits 
will put a much larger drag on tax revenue collection, the 
impact of this temporary lapse in the provisional gasoline 
and road-related taxes on Japan,s fiscal situation will be 
negligible. 
 
SCHIEFFER