Running on Empty

FROM TODAY'S WALL STREET JOURNAL ASIA

It's official: Japan has now returned to its 1990s economic thinking. In this time warp, raising taxes is good because it increases government revenue, which can then be spent on all sorts of wasteful projects, which theoretically expands the economy.

That may not be the exact jujitsu behind Prime Minister Yasuo Fukuda's decision to raise gas taxes 25 yen (24 cents) per liter yesterday, but it's close. In a press statement, Mr. Fukuda explained that he needs the money to construct roads, hire more doctors and fight global warming. Never mind that hiking taxes at a time when the economy is teetering on recession will only reduce consumption. Lines of angry motorists queued up Wednesday to fill their tanks before the tax kicked in yesterday.

Mr. Fukuda had to go to great lengths to achieve this back-to-the-future trick. His Liberal Democratic Party controls the lower house of the Diet. The upper house, controlled by the Democratic Party of Japan, stalled on extending the "temporary" tax, first imposed in 1974, when the lower house first passed the measure two months ago. So the prime minister used a procedural quirk and the LDP's lower house majority voted Wednesday to reimpose the tax anyway.

Mr. Fukuda says that he'll use the revenues wisely, devoting them to "general purposes" rather than their historic purpose: LDP infrastructure projects, aka pork. But depriving lawmakers of road funds for patronage will be a tough sell. The opposition DPJ's position isn't much better; it didn't oppose the tax hike because it discovered the virtues of supply-side economics. It sniffed an opening to embarrass an already-unpopular prime minister and try to force an election.

This all underscores just how bereft the world's second-largest economy is of the reformers it needs right now. Consumption is weak, exports to the U.S. – a main driver of economic growth – are slowing, and job growth remains anemic. If Mr. Fukuda really wants to plug his revenue gap, he'll work on getting the economy to grow faster, starting by cutting Japan's 40% corporate tax rate, ripping down barriers to foreign investment and liberalizing the labor market.

Mr. Fukuda says it was "a really hard decision" to raise taxes. Japanese voters can only hope their prime minister is now primed to make the even harder decisions that make for true reform.