Japan: The Poverty of Politics and Tobacco Policy

The Health, Labor and Welfare Ministry has drafted a set of new measures to stop passive smoking as Tokyo braces for the 2020 Summer Olympic and Paralympic Games, calling for a total smoking ban on the premises of public facilities such as schools and hospitals and imposing penalties on violators. However, a bitter feud between opponents and proponents within the ruling Liberal Democratic Party is casting thick clouds over the measures’ prospects.

The crux of the issue lies in the contradictory policies that the government has pursued by trying to secure tobacco sales as a major source of tax revenue while simultaneously seeking smoking restrictions to protect public health. What the government has been doing is tantamount to hitting the accelerator and the brakes at the same time.

The health ministry’s proposed rules would create three types of areas where smoking would be restricted or prohibited, with a proprietor violating the rules subject to a maximum fine of ￥500,000.

The most strict rules would be applied to such facilities as medical institutions, elementary, junior high and high schools, and child welfare centers, where smoking would be completely banned on their premises. Indoor smoking would be prohibited in such public venues as government offices, universities and sports facilities, and creation of smoking rooms would not be allowed. In areas where indoor smoking would be banned "in principle" — such as restaurants and hotels — the proprietor would have the freedom to create smoking rooms.

International pressure

Behind the efforts to tighten measures against passive smoking is the 2010 agreement between the World Health Organization and the International Olympic Committee to hold "smoke-free" Olympic Games. The health ministry’s plan was compiled as a necessary step to prepare for the 2020 Games. However, an outline of a draft of the measures released last October came under fire from industries that would be affected by the proposed regulations.

"Owners of restaurants, coffee shops and bars fear that the new rules could force them out of business," fumed Toshio Omori, head of a national confederation of trade organizations in food, beverage and other services. Tadao Kikuchi, chairman of the Japan Food Service Association, said, "We already provide customers with choices by designating smoking and nonsmoking areas," adding the proposed rules "run counter to the diversity of the food and beverage industry and customers’ ability to choose what they like."

Amid the loud chorus of opposition, the health ministry came up with exceptions to the rules that would allow small bars — presumably with a floor space of 30 sq. meters or less but which would be determined later by a government ordinance — to let their customers smoke. But when those "exceptions" were reported in early February, LDP Diet members in favor of smoking launched a counterattack backed by restaurant and bar owner groups, charging that if the 2020 Games are so important, the tighter smoking rules should be imposed only in Tokyo.

At a meeting of the LDP’s health committee, 90 percent of the members were reportedly opposed to even the ministry’s diluted regulations. The party’s tobacco caucus has come up with a counterproposal that would permit schools and medical facilities to set up smoking areas within their compounds and would leave it up to owners of bars and restaurants to restrict or ban smoking as long as such decisions are made known to customers. Lawmakers who adopted the plan at a caucus meeting in March even went on to say that restricting smoking denies people the right to pursue happiness as guaranteed under the Constitution.

Health ministry fights back

The health ministry has not succumbed to the opposition, charging that the health of pregnant women, children and cancer patients must not be forced to take a back seat to the freedom to smoke. Health minister Yasuhisa Shiozaki, an avowed anti-smoker, says his ministry is taking steps that need to be taken to achieve a "smoke-free society."

Such a deep-rooted divide within the government and the LDP cannot be explained by the difference between smokers and nonsmokers. Rather, it reflects the contradictions over the government’s tobacco policy — a paradox between the role historically played by tobacco as a key source of tax revenue and the public campaign against smoking in recent years.

Tobacco taxes have been imposed since 1876 — shortly after the Meiji Restoration. In 1904, the government gave itself a monopoly over tobacco production and sales to cope with mounting fiscal deficits following the Sino-Japanese War of 1894-1895 and also to secure sources of revenue to raise funds for the imminent war with Russia. At the time of Japan’s surrender in World War II, income from the tobacco tax accounted for as much as 20 percent of the government’s total revenue.

In 1949, at the urging of the Allied Occupation powers, the Japan Tobacco and Salt Public Corp. was created by separating from the Finance Ministry a section monopolizing those two commodities and camphor. The public corporation was privatized in 1985 to become today’s Japan Tobacco Inc.

But 32 years after its privatization, Japan Tobacco is still governed by special laws and remains a major contributor to state coffers. Take, for example, the price structure of a pack of 20 cigarettes that retails for ￥440. The local tobacco tax accounts for ￥122.44, the national tobacco tax ￥106.04, the special tobacco tax ￥16.40, and the consumption tax ￥32.59. The taxes amount to ￥277.47, or over 63 percent of the retail price. This brings to the government a steady tax revenue of ￥2 trillion a year. When that figure threatens to shrink as more people give up smoking, the Finance Ministry raises the tax rates to maintain the revenue.

Cigarette prices in Japan are kept lower than in many other countries because the government manipulates them to prevent a sharp decline in consumption. According to a tobacco industry insider, Japan is unique in that the government determines the retail prices of cigarettes, and that manufacturers have no freedom to set prices on their own. Thus, he says, the government controls supply and demand from the standpoint of securing tax revenue.

Government’s golden goose

Given its 33.35 percent stake in Japan Tobacco, the government has no choice but to encourage smoking. Its annual dividend revenue from Japan Tobacco shares amount to more than ￥70 billion. That revenue is kept in a special account for fiscal investment and loans, and according to the Finance Ministry is spent on industrial investment projects that are too risky for the private sector to undertake. No details are made public, however.

The Finance Ministry’s position of promoting tobacco consumption to secure tax revenue and dividend payments from Japan Tobacco is now being challenged by the health ministry, which is stepping up its efforts to curb smoking on the grounds of needing to promote public health, responding to the WHO’s poor evaluation of Japan’s policy on smoking and complying with the international standard required of Olympic hosts.

Since the WHO Framework Convention on Tobacco Control came into force in 2005, many countries are shifting supervisory power over tobacco away from government departments that handle fiscal and industrial policies to those responsible for public health. Against such a background, a big question is whether the health ministry will be able to take the helm of the government’s tobacco policy. An industry insider is skeptical, saying that as long as the government places priority on tax revenue, the Finance Ministry will remain in charge.

The business of Japan Tobacco, in which the Finance Ministry holds a one-third stake and wields veto power over its management, is clearly on a collision course with the government’s policy in promoting public health. In the first place, does it make any sense for the government to be involved in the business of selling tobacco despite its health risks? Meanwhile, does it serve the interests of Japan Tobacco shareholders to bind the company with special laws as it engages in competition in the international market? Unless these fundamental questions are resolved, Japan will never be able to break the bottleneck over its tobacco policy created by utterly self-contradictory policies.