A man looks at goods under signs telling customers about the Oct 1 rise in the national sales tax at a store in Tokyo on Sept 25. Photo: REUTERS file
business

Firms say Oct tax hike impact milder than 2014 increase

13 Comments
By Tetsushi Kajimoto

More than two-thirds of Japanese companies are feeling less pain from a tax increase last month than from the previous increase five years ago, which precipitated a recession, a Reuters poll found.

The results of the Reuters Corporate Survey support the view of the government and Bank of Japan that the economy looks likely to avoid a swoon in private consumption, thanks to steps taken to offset how the tax increase would affect the public.

Still, the overwhelming majority of Japanese companies remain cautious about boosting spending, with many planning to keep wages and hiring flat or even reduce them.

The survey offers the first corporate gauge of the impact of increasing the national sales tax to 10% from 8%, a step Prime Minister Shinzo Abe said was critical to curbing Japan's enormous public debt. He delayed it twice for fear it would squeeze consumer spending.

More than 70% of companies in the Reuters poll said both the rush to buy ahead of the Oct 1 increase and the subsequent pullback have been milder than when sales tax increased from 5% in April 2014. That tax hike dealt a blow to private consumption, which makes up about 60% of the economy.

When the economy stumbled after the 2014 increase, BOJ Governor Haruhiko Kuroda said he had underestimated the shopping spree and pullback, and subsequent declines in real income.

Although the impact this time seems smaller, that may mask underlying weakness in the world's third-longest economy, analysts say.

"Consumers could not go on a last-minute spending spree to beat the tax hike due to sluggish wage growth," said Kyohei Morita, chief economist Japan at Credit Agricole Securities.

Confounding expectations about lower last-minute demand, government data released Friday showed Japan's household spending rose at the fastest pace on record in September as consumers rushed to buy goods before the tax hike.

Although that could raise fears of subsequent pull-back in demand, separate data showed real wages rose in September for the first time in nine months, offering a temporary relief to policymakers worried about tepid pay raise and tame consumption.

The Reuters survey offers scant hope on wages, a longstanding weakness for "Abenomics," with three-fourths of companies saying they have no plans to increase wages or add workers.

On hiring, 63% said they plan to maintain current levels, while 16% plan to trim their workforce; 62% plan to hold the line on base pay while 4% aim to reduce their wage bill.

"As the economy is in a downtrend, Japanese firms will likely refrain from hiring," a manager at a wholesaler wrote."Wages won't rise unless the economy recovers."

Some of the minority of firms planning wage increases cited Japan's labour crunch, which has prompted companies to scramble for workers as the population ages and shrinks - even though higher wages may hurt profits.

The survey, conducted from Oct. 24 to Nov. 1 for Reuters by Nikkei Research, canvassed 503 big and midsize nonfinancial companies. Roughly half responded to the questions on the tax hike, hiring and pay, on condition of anonymity.

© (c) Copyright Thomson Reuters 2019.

©2019 GPlusMedia Inc.

13 Comments
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Wait until all the incentive point system runs out next year and then talk about the impact! Sugar coating guano and calling it a sweet cake does not change the fact that you are still eating guano!

6 ( +8 / -2 )

It was all scare mongering before the hike.

-4 ( +2 / -6 )

So, they felt less impact from a 2% tax increase than they did with a 3% tax increase. What a revelation that is, not!

They should be combining the impact of the two tax increases, not comparing them. A 5% sales tax increase over the course of five years with no salary growth or inflation is a disaster for the Japanese economy. However, at least corporation got their tax cuts to keep their coffers full. (sarcasm)

10% sales tax

10% income tax

10% city tax

10% health insurance

15% pension - with a less than 20% rebate.

That’s well over 50% of salaries in taxes. If you calculate in the 80% of pension premiums being shuffled off into a different coffer, people are being taxed over 60% of their salaries.

This is the reason I am leaving Japan for good next month.

6 ( +10 / -4 )

Really ?

Japanese car sales down 26 %

imported car sales down 24 %

department store sales down 20%

restaurants I know and go to are all complaining.

no news but good news allowed is it ?

8 ( +8 / -0 )

10% sales tax

10% income tax

10% city tax

10% health insurance

15% pension - with a less than 20% rebate.

That’s well over 50% of salaries in taxes. If you calculate in the 80% of pension premiums being shuffled off into a different coffer, people are being taxed over 60% of their salaries.

It's not 10% across the board;

Consumption tax in Japan, known in other countries as VAT, GST or sales tax, is a flat 10 percent on all items except food, drinks and newspaper subscriptions for which it is 8 percent (not including alcoholic drinks and dining out). Be aware that some shops are displaying pre-tax prices.

Income tax varies as well:

The Income Tax calculation is based on your Taxable Income minus the Standard Personal Deduction (which is equal to 380,000Y). This amount needs to be shared for each salary section of the grid below. For example your salary was 2,090,000, then you'd have to pay 5% on the first 1,950,000 and 10% on the last 140,000.

It's a combined village, town, city & prefectural tax the city tax is NOT 10% and based upon TAXABLE income.

10% health insurance;

Health Insurance is based upon your residency total income if you are on the national health plan, otherwise it is a co-pay including the unemployment and pension together in the social welfare scheme, together they

15% pension - with a less than 20% rebate;

Makes absolutely no sense!

And as noted the pension and unemployment along with health are bundled together for the social insurance plan, and it does not add up the manner in which you are inferring.

That’s well over 50% of salaries in taxes.

Geez, you forgot the airport exit tax, the gasoline tax, separate taxes on medical related goods and services, and a bunch more.

Hell the way you calculate things, we all are probably paying over 100% of our salaries in taxes! Damn!

This is the reason I am leaving Japan for good next month.

Good luck finding a place in the world where it's decent enough to live in that you DONT pay taxes!

Bye!

-4 ( +3 / -7 )

Fake news. Just wait till next month when there is no rugby cup and Japanese people realize their wallets have shrinked.

0 ( +1 / -1 )

I'm willing to pay high taxes IF I get proper public services in return. However, the government has thrown good money after bad and run up a 200%GDP debt by pouring concrete. They can't fix the falling birthrate or their fiscal irresponsibility while everyone keeps having to pay more for less. The sales tax rate will go up again and I'm not against it in principle but I doubt the government will actually do anything to fix the problems the country is facing hence I think it's best to leave unfortunately...

5 ( +5 / -0 )

Robert:

Restaurants have become expensive. The small local restaurant culture will disappear. Only major chains what can buy in bulk and keep prices down will be able to survive.

I went out to my one of my local places and the beers were smaller and everyone's bill was so high. I can't afford to spend that much just for a night out.

It's pretty sad but I think the young generation will be partying at home more. And more staff are going to be reluctant to go to nomikais.

Japan really messed up the one thing that made it great. Their restaurants!

3 ( +4 / -1 )

@Yubaru - Good luck finding a place in the world where it's decent enough to live in that you DONT pay taxes!

Bye!

I believe those percentage quotes are estimates. It is quite easy to find a country that you don't pay over 50% of your salary in taxes. It's also quite easy to find a country that pays dividends on your pension investment instead of stealing 80% of it.

4 ( +5 / -1 )

Dont you just love that fresh whiff of propaganda? It's equally shocking how anyone would believe this seeing it's been just one month after the debacle

an emotional response to something you refuse to believe is true.

Yep. I call this massive cognitive dissonance.

1 ( +1 / -0 )

Wait a minute, the government needs more money, incapable of stopping it's lavish expenditure so it taxes, basically rob citizens of their cash then blame the citizens for not behaving the request/ government line. Am I alone? How's your pension? Should the NHK man enquirer about this as he is knocking on your door. Work untill death pay a minority of people an exorbitant wage and suck it up.

3 ( +3 / -0 )

"Consumers could not go on a last-minute spending spree to beat the tax hike due to sluggish wage growth,"

But then...

government data released Friday showed Japan's household spending rose at the fastest pace on record in September as consumers rushed to buy goods before the tax hike.

So which is it? In short,they don't know jack.

1 ( +1 / -0 )

Watch the Real Estate figures... 10% tax on those is a lot!

0 ( +0 / -0 )

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