Wednesday, June 27, 2012

Japan to Raise Sales Tax from 5% to 8% (then to 10%) in an Effort to "Boost Economy"

That is what the politicians in the Noda Administration have been saying. Does that make sense? I don't think so. But nothing Japan has done, particularly after March 11, 2011, makes much sense.

Their reasoning is that people will increase their purchase significantly before the increase goes into effect in 2014, therefore boosting the economy. (Amateurs...)

It was not just DPJ (Democratic Party of Japan, ruling party) but LDP (Liberal Democratic Party which is nothing liberal or democratic) and Komei Party voted in favor of raising the sales tax from the current 5% to 8%. About 50 DPJ politicians, many of whom are aligned with Mr. Ichiro Ozawa, voted no.

The ostensible reason given to the Japanese for the tax hike is to pay for increasing costs for welfare and medical benefits for the elderly as the government reform the welfare system and the tax system. But there are only vague words of "reform", and the benefit for the elderly will be further decreased. There is no corresponding decrease in personal income tax, and there is no exception (such as on food items). In fact, personal income tax will be RAISED for the next 25 years to pay for the great "recovery" from the earthquake and tsunami.

Big corporations, particularly large exporters, are very pleased with the sales tax being raised. It won't hurt them, as they will continue to get tax refunds for the overseas sales if the products are made in Japan.

From Bloomberg News (6/26/2012):

Japan Sales Tax Risks Growth Grinding to Halt in 2014: Economy

Japan’s Prime Minister Yoshihiko Noda risks stalling the economy by pushing through a higher sales-tax that may damp consumption even as it aids efforts to tame the world’s largest debt burden.

The nation’s recovery after last year’s earthquake and tsunami could grind to a halt in 2014 when the first increase will take effect, according to UBS AG and Itochu Corp.

Parliament’s lower house yesterday approved the bill to raise the tax to 8 percent and then 10 percent in 2015 from 5 percent now. A slump would be a repeat of 1997, when an increase in the same levy contributed to pushing the economy into a 20- month recession, costing then Prime Minister Ryutaro Hashimoto his job.

“If there are no economic stimulus measures along with a consumption tax hike we can see around zero percent growth in fiscal 2014,” said Takuji Aida, a Tokyo-based economist at UBS, who raised his growth forecast for the year ending March 2014 to 2.9 percent from 2.2 percent because he sees a 4 trillion yen ($50.4 billion) rise in consumption and investment ahead of the tax increase.

A 1 percentage point increase in the tax would cut growth in real gross domestic product by 0.32 percentage point in the year after implementation, according to the Cabinet Office’s Economic and Social Research Institute.

Growing Debt Burden

Even with the sales tax increase, the government said in January that it will probably miss its goal of achieving a primary balance surplus, which excludes debt servicing costs, by fiscal 2020. It forecast a primary deficit of between 1.9 percent and 3.1 percent of GDP in that year, compared with the fiscal 2011 deficit of 7.4 percent.

Gross public debt will be 223 percent of GDP next year, up from the projected 214 percent in 2012, “pushing Japan’s public finances further into uncharted territory,” the Paris-based Organization for Economic Co-operation and Development said in a report last month.

Japan’s benchmark 10-year yield was 0.805 percent at 12:50 p.m today. It reached 0.79 percent on June 4, the lowest since June 2003 and the least globally after Switzerland’s. Five-year credit-default swaps for Japan’s bonds were 94 basis points yesterday, having slid 12 basis points since Noda took office in September, data compiled by Bloomberg showed.

The yen was trading at 79.44 to the dollar at 12:45 p.m in Tokyo, having strengthened more than 5 percent since mid-March. The Nikkei 225 Stock Average was at 8,707.64, down about 14 percent over the same period.

“Higher taxes will automatically shore up tax revenues even though an accompanying economic slowdown will somewhat reduce the amount collected,” said Hiroshi Watanabe, a senior economist in Tokyo at SMBC Nikko Securities. “Even so, Japan must raise the consumption tax to 16-17 percent if it wants to eliminate the budget deficit with taxes alone,” he said, adding “the government simply has to slash spending.”

(Full article at the link)

Mr. Watanabe has apparently never heard of the "Laffer curve".

Sales tax of 15% is what Christine Madeleine Odette Lagarde, IMF chief who pays no income tax on her IMF salary, recommends for Japan.

Prime Minister Noda probably couldn't care less about the angry public protesting outside the Prime Minister's Official Residence against the restart of Ooi Nuclear Power Plant. He got this tax increase bill passed, with the overwhelming support from the major parties. Ooi Nuke Plant may have served as an excellent diversion.


m a x l i said...

At the beginning of your article you say:
"But nothing Japan has done, particularly after March 11, 2011, doesn't make much sense."

Oops! I have been following what is happening in Japan since 3/11 quite a bit. And I read you commenting on it a few times. I didn't expect you to held the japanese government in such high regards. ;¬)

I suspect you meant to say:
"Nothing... does make much sense."
"Everything/anything... doesn't make much sense."

Is this some confusion on your part because of different ways to negate things in Japanese and in English?

Chibaguy said...

Makes sense if they want more people to leave Japan. If you are in your 50s and 60s you probably will receive your pension. Younger that this, you can forget about your pension but can expect to work to 75. This is what bankers say here.

arevamirpal::laprimavera said...

Maxli, the original sentence I wrote was "It doesn't make much sense..." in a different sentence structure. I changed it, but forgot to take out the double negative.

But on second thought, as Chibaguy says, it may make sense. Everything makes sense. They just want to crash the country, finally. And TPTB will take the money and run.

Anonymous said...

people of japan - if you have an opportunity to do so, it makes so much sense to move to australia or new zealand. their national debt is very low, they have decent economies, and they are far from the northern hemisphere's nuclear power plants. if your english is good enough to read this blog, you can get in. stop by their embassies this week to inquire. want something to do there? make nori please. I'd love to be able to buy nori from somewhere other than the north pacific.

m a x l i said...

Paying attention to a little mistake in a sentence may seem off topic and out of place, when it is clear anyway what you really meant to say. But it is a reminder that we humans make mistakes all the time. That's why we can't have a technology where one single little mistake leads to global catastrophe. Those who say we will learn the lessons from fukushima and will do everything perfectly safe next time, have a brain that is not working properly. We should start to see it that way, give them the support and care (and medication) they need and stop to choose them as leaders in Japan and everywhere else.

Anonymous said...

So, as a paraphrase, one could put :

The Best Way To Rob A Country Is To Lead One.

Anonymous said...

They're trying really hard to loot the country before it collapses. By the time that happens, nobody will be around for them to "take responsibility" and "apologize" to.

All governments do the same thing, anyway. We're only seeing it more often now because they've realized the general public has no idea what's going on, doesn't care, and/or can't do anything about it, so they pretend there's nothing wrong.

Consumerism and individualism has effectively lobotomized the population. They're robbing us in broad daylight and nobody notices. Whenever I talk about these things, nobody wants to listen because they're too busy having fun playing with their expensive new iPads, iPhones or enjoying their latest glued-together un-repairable/non-upgradable Apple laptops.

Contrary to popular belief, people don't become politicians to serve the public. They do it for the power of manipulating laws and systems to their personal interests, so they can hook their buddies up with tax-funded contracts, using things like "climate change", race, women and children as reasons to do so.

Their buddies pawn off some cheap shit on us and pocket the rest of the cash to pass back to their politician friends. The rest of us get stuck cleaning up after the resulting nuclear meltdowns.

They use an election system because people whine about dictators. Behind the scenes, they're all close buddies. They put on a show with fake debates and select a figurehead to "win". It keeps the sheeple happy, thinking they have the power and control; that their decisions matter... when they obviously don't.

I could go on forever. Most of the people here already know this anyway. Just writing it to expression my frustration, and for those who don't know or pretend there's nothing wrong.

Anonymous said...

Japan can raise the sales tax to 100%, and print 100 trillion Yen of paper 'money' to help boost the economy, and it will NEVER work!

People must understand that the process of 'death' of debt-based fiat paper 'money' has been taking place ('money' that is created from nothing). It is time for people to seek safety and protection in the real money that has served humanity for thousands of years before: Silver and Gold.

The prices of gold and silver have been rising steadily form more than 10 years now. It is time that the people recognize this as a sign of the coming collapse of fiat paper 'money' that is created from debt.

"It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning."
--Henry Ford (Founder of Ford Motor Co.)

Anonymous said...

@7.54am , good posting...right on the nail... we are being fucked over in broad daylight and no one gives a damn because ignorance rules, especially here in Japan... they say its a democracy, what a joke , its worse than a dictatorship here , people protest but are totally ignored..... make no mistake all the nuclear reactors will be online again soon , the government dont give a flying fuck about what the public think...

arevamirpal::laprimavera said...

@anon at 5:32AM, exactly. Same everywhere, but apparently very shocking to many Japanese, who have lived in the "tatemae" world too long and have started to believe in it.

Anonymous said...

Thank you for the given names of Ch. Lagarde, I did'nt know them. It gives the (illusion) feeling of having a glimpse in the person's psyche.
Then I spoted she was born "Lalouette".
Do you know this French / Canadian child song ?

arevamirpal::laprimavera said...

Anon at 12:10AM, I knew the song, but didn't pay much attention to the words. Hehehehe... off with your head...

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