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Japanese economic growth slows as sales tax hike looms

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The solution is simple: kill the tax hike, accelerate the reforms and keep the stimulus going.

When politics trumps economics on the economy, then you're bound to fail.

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Still, Abe’s efforts to stoke the economy have been bearing fruit.

meaning of fruit? national debt, it's growing at faster rate than ever before (!)

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" The solution is simple: kill the tax hike, accelerate the reforms and keep the stimulus going."

You got the first part half-right. Repeal all sales tax.

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Beginning of the end for Abe. His so called third arrow is a pipe dream but he made the LDPs business pals rich and his nationalists happy.

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Too late to kill the tax-hike.

Companies been preparing for it for months and now do undo the changes would be more costly than the money spend do far.

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Jean ValJean,

You got the first part half-right. Repeal all sales tax.

Such a declaration could possibly have deleterious effects on confidence in Japan's debt load.

I am aware that some people believe high fiscal debt is a free lunch with zero associated risks whatsoever, and fiscal consolidation is idiotic, but how about you?

In the absence of sales tax, how is the government is going to have a hope of paying for everything it's already paying for (even though they are spending two times revenue)? They seem to be aiming for a subtle (at first) inflation escape route, but to me a sales tax hike, which hits the people who voted for the politicians who brought this mess upon themselves, is not out of order.

I see the chances of organic growth boosting tax revenues as being pretty low.

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fxgai, first let me make it clear: there IS no "free" lunch. EVERY currency unit spent by government is the same currency unit taken from someone( or some business) at its current value which could have been put to some use by its former owner.

" In the absence of sales tax, how is the government is going to have a hope of paying for everything it's already paying for (even though they are spending two times revenue)? They seem to be aiming for a subtle (at first) inflation escape route, but to me a sales tax hike, which hits the people who voted for the politicians who brought this mess upon themselves, is not out of order."

As you yourself stated, the government's expenditures already far exceed its revenue. Without sales tax the government of Japan existed for a long time, BTW. They cannot and will not ever be able to pay for everything they've already promised. It's called "default", which is the reality that is coming regardless of sales tax.

Do you have confidence in Japan's debt load?

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Bizarre theory, Jean. In fact, it's the other way around: The bigger the debt in the public sector, the bigger surplus in the private sector, plus the foreign sector (basically zero in Japan's case. That's why a balance sheet is called a balance sheet: it all must equal zero in the end. Bookkeeping 101.

Thus, paying down the debt would require taking money out of the private sector and giving to the public sector (taxation). Is that what you want?

"It's called "default", which is the reality that is coming regardless of sales tax."

When? When? Give us a time frame. I am tired of people sharing this worldview making bold pronouncements and then being vague about the timing, etc., it, just so they can squirm out of being wrong.

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Jean ValJean,

Amen. When the government spending is just unproductively lining pockets as seems to be the case in Japan, it really can't replace private spending for positive effect, and evidently has only served to increase the debt.

Without sales tax the government of Japan existed for a long time, BTW.

Good point, although I suspect in the high growth days that model worked, but I don't know about that for mature economies where consumption makes up a large chunk of GDP.

It's called "default", which is the reality that is coming regardless of sales tax.

Ah, now I understand, you regard the debt situation as hopeless in any case.

Do you have confidence in Japan's debt load?

More so than you I suspect, but certainly not 100%, that's for sure.

I can imagine the odd global markets drama will result in sporadic episodes of yen appreciation, but with the trade and current account balances in the red, I expect the yen to continue heading down. Worries over Japan's growth and debt dynamics will only reinforce this as the rational actors in Japan should increasingly look abroad to protect themselves, unless Abe really gets his A-into-G on various "painful" structural reforms, stoking some real growth for a change. Not holding my breath, but without that it's down to the semantics of either outright default or inflating the debt away.

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