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Political Leadership and the Policymaking Process (3)

Tags: Asia-Pacific , DPJ , Policymaking , Social Security , Governance

Tanaka, Hideaki

June 10, 2010

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This final article in a three-part series of articles about political leadership and the policymaking process looks at measures introduced in Australia, and presents three proposals for credible policymaking in Japan.


The Australian Approach

In the previous two articles I have identified current problems in Japan. Now we shift our focus to the question of how public policy is formulated by governments in other countries. Since it is impractical to present the approaches of every industrialized country in the Organization for Economic Cooperation and Development, I have chosen to narrow my focus. The efforts being undertaken in Britain and other English-speaking countries provide special insight, as they include the implementation of analyses and various consultations by independent experts concerning policy drafting and institutional reforms. In Japan, the issues of the child allowance and tax exemptions are now being debated, and moves are afoot to undertake integrated reform of the tax and social security systems. Here I will introduce the case of Australia, where similar reform efforts are currently underway (see the following website for details: http://taxreview.treasury.gov.au/Content/Content.aspx?doc=html/home.htm).

Australia’s Treasurer Wayne Swan announced the plan to undertake an integrated review of tax and social security systems in May 2008. To this end, a review panel was established, headed by Departmental Secretary to the Treasury Ken Henry and including Jeff Harmer (Departmental Secretary, Department of Families, Housing, Community Services, and Indigenous Affairs), John Piggott (professor, University of New South Wales), Heather Ridout (chief executive, Australian Industry Group), and Greg Smith (adjunct professor, Australian Catholic University). A committee to review reform of the country’s pension system was established at the same time. Here it must be borne in mind that Australia differs from Japan in that ordinary civil servants as high up as secretaries are expected to be professional experts and maintain strict political neutrality.

These panels are comparable to the councils set up by Japan’s government ministries and agencies, but a major difference is that, unlike the government councils in Japan, they are set up on an ad hoc basis, operating under terms and conditions defined in advance by the government with respect to such matters as the objectives, scope, methodology, and timetable for the review. Another difference from Japan is that experts from the private sector do not serve as regular panel members and act as mouthpieces for the bureaucracy. Here are some of the conditions that were established for the Future Tax System Review: “The review should take into account the relationships of the tax system with the transfer payments system and other social support payments, rules and concessions, with a view to improving incentives to work, reducing complexity, and maintaining cohesion” and “The review panel will consult the public to allow for community and business input.”

The process of review began in earnest in August 2008, when the government published “Architecture of Australia’s Tax and Transfer System,” a discussion paper analyzing the problems and conditions of this system. From August to October the review panel invited opinions from the public by presenting them with specific questions, and exchanged opinions regarding the tax and transfer system with representatives of various industries, experts, community figures, and others. The opinions put forward, both from organizations and private individuals, were posted to the panel’s website.

Based on these opinions and other considerations, in December 2008 the review panel released a set of consultation papers that presented analyses of newly defined problems and other matters, providing materials for conducting further review, public hearings, and consultations. From then until mid-2009, opinions were invited with regard to both the tax and transfer system and the pension system. Public meetings to exchange views were attended by representatives of various industries, experts, and other interested parties, and public hearings were held in the each of the state capitals.

The deadline for the public to submit opinions was May 2009, and the following month a large conference on tax and transfer system policy was held in Melbourne. May was also the month in which the government released its report on the retirement income system. From June until November, the review panel undertook further consultations and review meetings with related organizations. Finally, in December 2009 the panel submitted its first report to the treasurer. In advance of this, a Pension Review Report based on the review being undertaken concurrently with the review of the tax and transfer systems was issued in February 2009. The report provided an analysis of the problems and conditions of the pension system, as well as recommendations for the direction of reforms.

In Australia, a panel of experts spent approximately one and a half years working toward integrated reform of the tax and social security systems, conducting evidence-based analyses of the current situation, holding consultations and public hearings directed at the entire country, clarifying the problems, and offering recommendations for the direction of reforms. These recommendations will be taken into account when the government submits its proposal for reform to the federal parliament. This is a major set of reforms, and the entire process from review to enactment will require more than two years. Japan’s new child allowance is a measure to redistribute income intricately related to its tax system, and it is a significant policy undertaking that will eventually require over ¥5 trillion in funding. But in Japan’s case, no data has yet been made public, nor has there been anything in the way of consultations with experts or the public. So far, the only definite outcome has been its inclusion in the fiscal 2010 budget.

Transparency and the Decision-Making Process

Why has Australia adopted this sort of policy review process? It is not from an abstract commitment to “improving transparency” as an important value; rather, it is an approach adopted in order to avoid failure in policymaking. If the policy fails, it is the public’s welfare that suffers. The reason for gathering a broad range of opinions and building consensus is that tax and social security reforms are likely to cause conflicts between differing interests. The U.K., the United States, and the Scandinavian countries also share in this approach. Countries like the U.K. and Australia are generally seen as having strong political leadership, but this is not to say that policy there is discussed and decided solely by politicians. Naturally, final decisions should be made by a cabinet composed of politicians elected by the public. The issue lies in the decision-making process. In Japan the government—particularly the bureaucracy—has been considered infallible, but actually this attitude has led to problems such as the failure of the medical care system for the elderly and miscalculations in estimating demand for expressways and airports. Back during the postwar period of rapid economic growth, the expanding economy would eventually fix the problems from such failures, but now the situation has changed. We should approach the process of policy review by assuming that a government often fails.

Even in Japan, we have had cases like the reform of the pension system in 2004, which—however one may evaluate the policy itself—did involve a variety of studies and deliberations. The Social Security Council’s pension committee launched its review in January 2002. In September 2003, written proposals were compiled and Minister of Health, Labor, and Welfare Chikara Sakaguchi issued a draft proposal concerning the benefits and burdens that would result from reform. Based on this, the ministry drafted its bill in November that same year. It then passed through an advisory panel and the ruling coalition’s deliberation committee, and in February 2004 the relevant legislation was presented to the Diet. The child allowance, involving as much as ¥5 trillion in spending, is a policy of significance on par with that of pension reform, but the process of considering it was concluded after only roughly four months starting from September 2009. What is more, basic data concerning the plan was not released, nor was public opinion invited. Unfortunately, one can only conclude that the policy formation process in this case was less transparent than in the past. In the case of Australia’s integrated reform of its tax and social security systems, the process of formulating a proposal began with an analysis of the current situation and took one and a half years.

The public voted for the Democratic Party of Japan with the expectation of a change of government. A change of government increases the chances for reform, but does not guarantee that the reform will be successful. According to recent newspaper reports, support for the administration has been decreasing significantly. This is because the credibility of the government is being called into question. The government is expected to show new policies that are different from those of the previous government and improve its credibility. This is one of the most important conditions for a lasting administration. The new administration is planning to establish a panel to consider reform of the pension system, so it is still not too late. The government should work to make the decision-making process for the child allowance and other important policies based on its manifesto more transparent. That, above all, will contribute to improving the welfare of the public.

In conclusion, I offer the following three proposals for the future shape of policymaking in Japan, with reference to the initiatives taken in Australia and other considerations.

(1) Disclosure of data and calculation methods
The government should make public the various data relating to matters such as income redistribution and the supply and demand for services, or make this data easier to access.

(2) Wide-ranging consultation
Rather than establishing permanent advisory councils, the government should set up ad hoc review panels composed of agenda-specific experts  and ask them to carry out an objective analysis. Furthermore, it should invite opinions widely from both organizations and individuals (needless to say, the government will need to respond to these opinions) and foster debate.

(3) Use of ministerial committees
Decisions should be made after substantive debate has been conducted among the relevant cabinet ministers concerning details of policy content and system design, based on facts and data.

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