Japan Today



10% consumption tax will destroy Japan, argue some


The governing Democratic Party of Japan won its historic electoral victory last August with promises of child allowances, farmer subsidies, lower taxes and other sugared inducements to voters. Now suddenly, under new Prime Minister Naoto Kan, the talk is of doubling the consumption tax from 5 to 10% to attack a no longer tolerable “debt crisis.”

Shukan Post (July 9) is indignant – first at the “180 degree turnabout” from the platform that got the party elected, and secondly at a measure that in its view will “destroy Japan.”

What astonishes the magazine is that everyone seems to be swallowing Kan’s “propaganda.” Even the media, whose critical reflexes are their stock in trade, are falling into line. Their chorus of support consists of three lines: “Japan is in financial crisis;” “Japan is becoming another Greece;” “We mustn’t pass our debts on to our children.”

A much repeated statistic, issued by the Finance Ministry and parroted by the media, has it that Japan’s combined central and local government debt amounted as of March 2009 to 900 trillion yen, nearly twice its GDP. Even Greece, we hear, whose near default last spring almost derailed (and might yet derail) the euro, was in debt only to the tune of 1.2 times its GDP.

However, “many economists dismiss that,” says Shukan Post. Among them is Hidehiro Kikuchi, director of the Japan Finance Research Center. The 900 trillion yen figure is wildly inflated, he says. It fails to take into account government investments and assets totaling some 505 trillion yen. Factor these into the equation, he argues, and the actual debt works out to about 367 trillion yen – “a figure more or less in line with other developed countries.”

Saitama University economist Koetsu Aizawa takes issue with the comparison to Greece. “Greece’s economy is not strong, and as a member of the euro zone, it was apt to say to itself, ‘If we get into trouble the EU will bail us out.’ Japan, unlike Greece, has an independent currency. If it falls into financial crisis, the market’s regulating mechanisms will go into play. There will be a sell-off of Japanese stocks and bonds, the yen will depreciate, exports will revive.”

Moreover, he adds, Japan’s sovereign debt, unlike Greece’s, is held overwhelmingly within the country, not by foreigners engaged in potentially destructive speculation.

“Of course,” Shukan Post admits, “it would be rash to say that Japan’s finances are trouble-free.” But the consumption tax was raised once before – in 1997, just when the country seemed at last to be emerging from a long post-bubble slump. The result? A plunge back into deflation.

“Prime Minister Kan,” the magazine winds up, “how long are you going to lie to the people?”

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“Prime Minister Kan,” the magazine winds up, “how long are you going to lie to the people?”

As long as you media people keep lying. five percent increase is not going to 'destroy' Japan.

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505 trillion yen of investments and assets. So these economists suggest Japan just sells it all off? Who is there to buy it all up? Just what government assets are no longer going to be the government's assets? And what happens when there's a major national crisis, like a major earthquake in Tokyo, and Japan needs some cash? Oops, nothing in the bank. Too bad they didn't just raise the consumption tax.

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Going on this logic, when the people of Great Britain start to live under the merciless tyranny of 20% VAT in 2011, I suppose they might resort to cannibalism.

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"Who is there to buy it all up?" Go ask the bond market. Every day, people snap up Japanese bonds paying 1% or less. They can't get enough of them. At the post office, people deposit funds to obtain 0.05% interest. You should get out more, Airion.

S7 whatever... The VAT was assessed on final goods only. The 10% in Japan would apply to every transaction along the supply chain. So each middle man pays 10%, and eventually, you get a product in Japan that has been taxed 50%.

A 10% consumption tax will not destroy Japan, but it is a stupid move to make today. Kan deserves all the bile that can be spewed at him.

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I call BS on Shunkan Post, they're the ones lying to the public about Japan's finances and this tax. I don't know if the tax is a good or bad idea, but it's ridiculous to suggest it would "destroy" Japan in any way. Hey, maybe it's simply a bad idea but Japan's still going to be around and no better or worse than it is now. And there's no such thing as discounting sovereign debt because the government has "assets". Those assets can't be sold any more than a person's body parts to pay for debt. And it doesn't need to be said that even if they sold every school, police station, and public park in Japan they'd still be in debt. Nobody measures sovereign debt that way.

And of course Japan's economy is much much bigger than Greece's. So is it's debt. The childish logic being implied by Shunkan here is not surprising. And in any case, saying you are slightly better than Greece is really a Freudian admissions that you are worse than even Spain, Italy, or Portugal.

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Political and bureaucratic incompetence will destroy Japan

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I wouldn't oppose a 5% increase.

However, what I would point out is that putting more money in the hands of government is not the solution to an economic crisis. An increased consumption tax is going to have a disproportionate effect on domestic spending. Increase tax by 5% and, at least temporarily, people will "cut back" about 10% as they perceive that the cost of living increases, especially retired people (about 30% of Japan's population) who have fixed incomes and who budget carefully.

Logically this will result in the financial crisis deepening and no additional tax revenue for the government (in fact tax revenue will temporarily decrease). The ripple effect of this temporary dip on global investor confidence could be disastrous given how skittish investors are coming out a recession.

Kan needs to give his economist a swift kick in the pants for even suggesting this idea at this time.

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Klein2- I think you're confused about the government selling off it's investments and assets vs the government selling bonds (basically, people loaning money to the government). Government assets include things like universities, government buildings, museums, etc. Tons of things. Besides the fact that it might not be a good idea to sell all of those, I doubt they're such hot items that all 505 trillion yen of it would be so simply bought up.

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I wonder what these assets are that total Y505 trillion. Some of them are foreign exchange reserves, of which Japan has a lot. But if Japan sells those assets to pay back debts the Yen will appreciate in value and damage exporters.

Another big asset is the government pension investment fund, but if that is used to repay debts there won't be any money for pensions. Furthermore, the pension fund has about Y85 trillion of Japanese government bonds as "assets": if these were to be sold then, assuming a buyer could be found, the bond yield would dramatically increase and would soon bankrupt the government.

Although it may seem like the government has a lot of assets, in reality it is difficult to use these assets to repay debts. I wonder if the economists quoted in the article have really thought things through.

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I certainly hope they aren't counting the pensions, because that's not the government's money. This is akin to a tenant selling their landlord's house. Using this to pay debts is also a crime, because it's not their money.

While I don't think raising the tax is a good or bad idea, people are not going to cut back in the long run because of it for the simple reason that they didn't have long term cutbacks every single other time it was raised. Quite the contrary, the correlation is surprisingly weak in the long run.

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Why not consider first raising the consumption tax from 5% to 7.5%. Do this immediately, and consider raises in the following years. That's my suggestion. Also I don't believe even doubling the tax to 10% will hurt the country that much. Here in California, our local sales tax is 9.75%. That's almost 10%!!! our sales taxes have been increased frequently, although one can ask if that's helped much as we're still on the verge of BK due to huge debts and budget overruns.

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It will kill Japan, people will stop buying everything.

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This bit tickled me:

Japan’s sovereign debt, unlike Greece’s, is held overwhelmingly within the country, not by foreigners engaged in potentially destructive speculation.

As long as our nice cuddly home-grown yakuza extort their own patriotic consumption tax on businesses, have their fingers in the pie all over the place and keep control in the Family, we Nihonjin are all safe. We have no ghastly foreigners under our beds, so we can sleep tight tonight.

Klein2, good point about the difference between EU's VAT and Japan's consumption tax. I'd always thought 5% was a very small amount compared with 17.5% VAT, but I hadn't thought about the difference between how they're levied.

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Japan’s sovereign debt, unlike Greece’s, is held overwhelmingly within the country, not by foreigners engaged in potentially destructive speculation.

Japan's debt is held by older people and pension funds who started to become the number one net seller of bonds. Hence the sponge to absorbing governments need for more cheap money is getting smaller. And with a net saving nearly zero the younger generation is not stepping in the circle to provide cheap money. That is when the whole system is doomed.

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It fails to take into account government investments and assets totaling some 505 trillion yen

These numbers are book values at best (its like the claim that the emperors palace is the most expensive piece of land on earth ... just that no one could buy it).

The same self deception (using book value) inflated the Japanese stock market and let to a mega crash from nearly 40.000 to less than 10.000 points.

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Moreover, he adds, Japan’s sovereign debt, unlike Greece’s, is held overwhelmingly within the country, not by foreigners engaged in potentially destructive speculation.

As Japanese population gets older, savings rate decrease (old people use their savings, young people cannot afford anymore to save as much as in the past). Household savings rate went from 11% in 1998 to 2% in 2008. This means the demand for bonds will keep decreasing, so interest rates are bound to increase. Therefore the cost of debt will most likely increase. Whether the government increase taxes or devaluate yen, it won't help as this will further raise interest rates and destroy public finances.

Japan has tries numerous keynesian recovery plans, which have all failed.

If I was the Japanese Prime Minister (well, this is clearly a fiction), I would instead:

Liberalize markets: remove anti-competitive and protectionist laws (Japan has an amazing number of such laws, while it takes advantage of open markets abroad) Stop financing dead-end areas and promote small business/services/technologies for developing local economies (Tokyo and a few metropolitan areas are world class, the rest of the country is almost dead economically) Promote large scale immigration to sustain the tax-payer base Fight corruption Transfer public works to the private sector (instead of semi-public associations under the control of amakudari) and definitely stop all these useless recovery plans, which led to a dramatic increase in public spending while failing to "fix" the economy.
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thepro at 09:44 AM JST - Political and bureaucratic incompetence will destroy Japan

More likely..

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It would be just the final nail. Japan already is dead... just need to bury it.

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Mr. Takahashi Yoichi, a former bureaucrat of the Finance Ministry, says that out of Japan's government debt totaling to 800 or 900 trillion yen, true debt is 300 trillion. 200 trillion were spent on building roads and other concrete/steel things (assets). And the remaining 300 or 400 trillion were what the government borrowed for the independent administrative corporate bodies and quasi-non-governmental organizations. So if they abolish these organizations, 300 to 400 trillion yen of debt will vanish. They have things to do before swallowing Kan’s and the Finance Ministry's “propaganda." Financial crisis may be similar to what they talk on deterrent. Their aim is to waste the tax money paid by the sweat of our brow.

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Mr. Takahashi Yoichi, a former bureaucrat of the Finance Ministry, says that out of Japan's government debt totaling to 800 or 900 trillion yen, true debt is 300 trillion. 200 trillion were spent on building roads and other concrete/steel things (assets). And the remaining 300 or 400 trillion were what the government borrowed for the independent administrative corporate bodies and quasi-non-governmental organizations. So if they abolish these organizations, 300 to 400 trillion yen of debt will vanish.

This doesn't make any sense! I don't even know where to start with:

Debt doesn't "vanish" magically.

Whether the debt was spent on building roads, paying golf membership to bureaucrats or developing supercomputers doesn't matter. It still has to be counted in the total debt.

The BIG mistake from Japanese economists is to think that cheap debt will always be available. The day debt cost increase (interest rates), the country will be in a very bad situation.

All things considered, the situation is similar to the housing market crash in US: everybody thought that the price of housing will raise indefinitely. For some reason, it did not and trigger a series of events leading to financial crisis.

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10% is nothing. I have a combined 15% provincial/federal tax that started this week (Ontario, Canada) and Sweden's VAT is 25%. Japan can handle this just fine. This isn't even an argument, time to pay up and pay off the bills. That would be responsible, unlike the some who argue. The only thing destroying Japan is reckless opinions by so-called professionals who should know better. Kan has the reputation and can call these twerps bluff. Good for him and good for Japan.

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One could argue that under the current organizational system of Japanese administration, any tax increase won't be used efficiently and will most likely feed useless government projects and corruption.

There is also the famous paradox according to which increased taxes can result in lower tax income. See "Laffer curve" on Wikipedia: http://en.wikipedia.org/wiki/Laffer_Curve

So, how to decrease debt?

transfer of some government duties to private sector streamlined governmental organization (small and responsive), online administration, flat tax stop subsidies to inefficient businesses and agriculture gradual switch from repartition-based pension system to capitalization pension funds create independent agencies overseeing public spending competitive bidding for public works abolish protectionist policies and welcome foreign investment and competition no more stimulus plan
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What Mr. Takahashi talks about is the independent administrative corporate bodies and quasi-non-governmental organizations. 300 to 400 trillion yen was borrowed for these "independent" organizations. The government should carry out a reform on them, which the former governments neglected due to the opposition by the bureaucrats. He says it's where they should take drastic measures before raising sales tax.

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eat otoro and let others worry about it

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Just pay your taxes and stop all of the whining! I pay my fair share and you should too!

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I actually with the Japan Communist Party on this one. Raising the tax is a bad idea.

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Piglet, funny thing about the Laffer Curve, no study has ever demonstrated that a country is on the right side of the curve (the point where increasing taxes decreases revenues). When a country's tax is 30%, economists looking at the data say the tipping point is at 40%, when a country's tax is 60%, they look at the data and say 70%. Basically, the curve shifts and evolves, it seems, with the taxation level. As people get used to higher tax levels, the Laffer Curve shifts to the right. No tax increase I know of has led to reduced revenues, no tax cut has ever increased revenues. The Laffer Curve need not be completely wrong, but those who mention it often presume erroneously that countries MUST be on the right side of the peak, when every evidence reveals that countries are basically always on the left side.

Anyway, the economic problem of Japan is not understandable if you only look at the economic terms, the problem is the reality. The Japanese population is old and growing older, that means less people ultimately engaging in economically productive activities. The problem is that modern economies are based on the premise of eternal growth, but Japan's economy will likely contract as the population is likely to start falling. All countries will ultimately have to go through this, the human population cannot grow forever, in fact it would be best if it was reduced by attrition to have a more sustainable level. Increased productivity can help, but it's no miracle solution and it has its limits.

The solutions you put forward have also always led to the creation of bubbles, not stable growth. Shifting more and more money into private hands and stopping interventions lead to the monopolization of the economy into a few private hands, which reduces opportunities as demand falters, leading to the investors, lacking profitable opportunities in the real economy, to go fully into speculation, creating bubbles to fuel unsustainable demand which ultimately crash the economy. It happened in the 1920s, it happened in the Japanese real estate boom of the 80s and it happened recently with the subprime crisis.

10% tax is still lower than most western countries, I wouldn't worry too much about it. But it may not be the best time to introduce it, since demand is already pretty low and increasing taxes risk reducing it even more.

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Going up to 10 percent will not "kill" Japan,but either being unwilling or unable to, will surely send Japan into a banana republic in the not too distant future.

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Maybe I will retirement in another country. I like Europe very much

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Piglet is correct. Debt is debt no matter HOW it was accrued. Even if you eliminate the entities that were the cause of the debt, the debt will still be there until it gets paid off. Going from a 5% to a 10% consumption tax will help to cut into that debt.

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Fadamor, that's not quite true. The fact is that if debt is caused by investments into entities, those entities still have value and could be sold for a certain sum that could eliminate most of the debt. In a way, one could say the debt is "backed" by the asset. If on the other end your debt is caused because you spend more money on temporary goods instead of on investment opportunities, then the debt is backed by nothing and is much worse, because if push came to shove, you have obtained nothing in exchange of it that you could sell to repay it.

All that being said, increasing taxes for Japan given its constant deficits may be necessary to correct the situation. I simply question if now is the best time to do it, considering the state the economy is in. You don't ask a patient who has just been operated on to do push ups, you wait until he's better off.

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After reading the last 10 posts or so, I would vote for Piglet's argument. It sounds very similar to what Canada had done to illiminate its defecit and have surpluses year after year which reduced its debt. I must admit all those cuts (staying on hold for hours to get through to someone to talk to, everything can be done online now-- including collecting UI, etc, paperless schools) had also carried over to the private sector which helped everyone be more conscious about spending. I dont think they played with the tax rates though. For those that argue most western countries have higher tax rates, i would say look into the population/size of those countries and you would see why those countries have a much higher rate than Japan.

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"Japan can handle this just fine." I think this position is somewhat uninformed.

Japan already has a high combined tax base against working people. National and city taxes have both gone up and the cost per household for state supported medical programs are also high. The combined tax is quite high when you consider that many households here manage on 5-5.5 Mil yen per year.

Now. Spending is already depressed in Japan. An increased sales tax is likely to contribute to this if not drive spending down. That leads to lost jobs which leads to increased social welfare spending and less tax revenue. See the cycle here?

Then consider that already 17% of Japanese people live in poverty. A 10% tax will close many of them out of the market. And the 17% does not really address other classes of working poor who are supporting families on salaries in the 100K to 200K monthly range.

A blanket sales tax is not the nail in the coffin, it will be the incinerator and crematorium for Japan's economy. Japanese economic behavior is not Sweden or Canada. The consequences here will be dire.

But there are other answers. Ones that make sense and don't degrade spending and drive deflationary forces.

Luxury Tax: Tax high ticket items at a higher rate. Modest Sales Tax Hike for Non-Essentials: Ok so a little higher sales tax for non-necessity items makes some sense. Abolish taxes on food and necessities: This will help the poor get by better. Raise tobacco taxes by 2-500%. A 600-700yen packet of cigs sounds about right. It will drive some to stop and others can support the system they dispropotionately impact. Raise Alcohol taxes by double at least: Again alcohol use taxes the health system, so tax it and use the revenue to help. Heavily tax cars and trucks: A simple test. Do you drive because you have to? Or because you want to? If want is the answer then you get to pay high taxes. If you have a disability, can demonstrate that driving is necessary to your work or family life, then no increase. Close down everything that is not serving the public needs. Do what the mayor of Osaka has done and cut spending for state run places that no one uses. Open up the markets here to allow more foreign labor, easier foreign business and more level competition. This will bring more international business and the tax revenue that comes with it.
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Why don't they put it up to 7.5% and increase the price of cigarettes to western prices (800 yen a packet)? - that way they pay off some of the debt and get healthier too. VAT in the UK is 20% and it isn't quite dead. 10% is hardly likely to kill Japan. Whatever they do, the debt level in this country is way too high. Leaving it the way it is is irresponsible and unfair to future generations.

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Hey, hold on a minute、I though it was foreigners getting the vote that was supposed to destroy Japan?

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increasing taxes for Japan given its constant deficits may be necessary to correct the situation

IMO it's not a question of may be or not; it's a clear answer of necessity. also raising the consumption tax to 10% may end up having little to no impact in raising additional tax revenue since Kan, in all his glorious wisdom, is talking up a near 50% reduction in the corporate tax rate. it doesn't take a genius to figure out that this formula will still result in an overall deficit; unless Kan can miraculously increase the overall corporate tax base.

someone already said this in the comments earlier; it's not a question of raising taxes, rather it's a question of what the current administration does with the tax revenue that's received. i have absolutely zero faith that any of the past or present administration members will actually act in the best interests of this country. until such time as the voters of this country stop allowing themselves to be led around by the nose the various adminstrations will continue to rape the tax revenue for the benefit of their zaibatsu cronies and ultimately themselves.

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Raising taxes on tobacco and alcohol is a cop out. Raise taxes evenly across the board. Anything otherwise is unfair.

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"Raising taxes on tobacco and alcohol is a cop out. Raise taxes evenly across the board. Anything otherwise is unfair."

Rubbish! Users of both substances have a far higher propensity for long term illness. Thus both categories have a far stronger impact upon the cost of maintaining social health care systems. As this system is one of the main rationales for raising taxes in Japan, it makes perfect sense that those who adopt destructive behaviors that result in higher usage of the system should pay more.

This already happens in much of the world where insurance rates are far higher for smokers and people with heavy alcohol use. Taxes on these products make considerable sense and are fair in light of these facts.

Further, these products are elective and thus fall into the category of luxuries which I also advise taxing at a higher rate.

The notion of flat sales taxes does not make sense in a society with a very non-flat economic picture. The 17% poor will be hit disproportionately hard by a 10% sales tax by comparison to their fellow citizens with higher incomes. Thus why taxes on non-essentials and the elimination of taxes on essentials makes sense.

As for Kan and his reduction in corporate taxes. Well that just helps define just who Kan and company work for. Certainly not Taro average worker. There is this myth that corporations will invest the tax savings in job creation and investment. When history shows us that the savings usually end up in share holder pockets or those of the execs. The idea that corp tax reductions will help the economy enmasse is a bold faced fabrication.

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The fact is that if debt is caused by investments into entities, those entities still have value and could be sold for a certain sum that could eliminate most of the debt. In a way, one could say the debt is "backed" by the asset.

This is theorically true but do you realistically expect that any of these entities have any retail value? Most semi-public entities in Japan do not operate according to market rules and are merely extensions of the government.

Anyway, I would strongly suggest the government to sell part of its assets (participations in private companies, unused buildings, etc...).

Simplifying bureaucratic process is also a good source of savings:

I suggest a goal of a paper-free administration within 2025) with the development of online procedures

Merging of administrative entities

Outsourcing of some public tasks and projects to the private sector

Strong anti-corruption campain

The era of cheap debt might be about to end and any interest rate increase might be very painful for state budget.

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Japan has tried the borrow-and-spend method for 20 years and every year its debt grows larger and the economy continues to stagger forward. The only realistic option is to cut government spending and to allow the economy to restructure. It will be painful, but Japan has not faced up to the realities of the post-bubble era. Not taking action now will make the eventual pain worse.

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Globally we are seeing the failure of the capitalist model that has been in place for the last decade or two. The collective meltdowns across banking, industry and not governments is a clear indicator that the system itself is flawed and incapable of coping with the reality of modern civilization.

What we need is to rethink the system. Rabid consumption cannot continue and as such heavy production and consumerism will both decline along with the industries that support them. Sustainability is the answer and new ways of finding work for people to maintain economies is necessary. Buy and sell can no longer be the sole driving force of the planet.

Perhaps my tax recommenations are the band aid to buy time. But it is only putting the first test biopsy on a much greater cancer, a right step but not a permanent solution. The real answers must come through large scale economic revision in Japan and around the world. Japan is especially well positioned to look at this seriously. But it must be a national effort of government, industry, small business and the working people.

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Using the U.S. as an example, in the late 90's the government was actually running on a small surplus. The next President in office immediately cut taxes and authorized a small refund to every household. Within a year the government was back to running at a deficit and then 9/11 and the associated wars kicked in - sending government spending through the roof. Whatever "cushion" the small surplus had created dissappeared almost overnight. You can't assume things will always stay the same.

Japan needs to get back to a balanced spreadsheet. Cutting taxes will not do that. Cutting services to the population and raising taxes will certainly move Japan towards a balanced budget. The question is: Are the Japanese people ready to see a reduction in the quantity/quality of their government services?

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Fadamor, it's more than just the government services which would be affected if the Japanese government adopted austerity measures. When a government has a deficit, it tends to inject money into the economy, thus propping it up a bit. How the money is spent matters a lot, so it's a bit of a simplification, but it is still true. When the government instead manages a surplus, it actually takes money out of the economy, thus slowing it down. The issue is difficult and complex.

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"Klein2- I think you're confused about the government selling off it's investments and assets vs the government selling bonds (basically, people loaning money to the government). "

Airion. Selling off assets would be more difficult and stupider than selling debt. I agree. Frankly, I ignored that suggestion in the article because it was just too dumb. You make the point that nobody would buy public buildings? Sure.

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Not a single poster has even questioned the necessity of a tax. It is like watching a herd of cattle. Oh wait. Sarge. OK, Count on Sarge to always have reasoned, if not reasonable opinions. Kchoze and TKOind are the guys in the trenches telling the bad points about taxes, though. Good on all of you.

Let me say it again slowly: If you borrow at 1% and grow at 2%, your economy doubles in about 30 years and the debt doubles in about 70 years. That is a fact. A mathematical fact. If you wreck economic growth, you never pay anything back. Get it? So taxes are a stupid strategy. Just plain dumb. Wrecking the economy today and tomorrow just to shave a couple of percentage points off the debt number is idiocy. Add in the likelihood that it will increase social instability, and the idea looks even dumber. Borrowing now to finance growth through education or energy and recycling projects, etc. is the smart move.

It is the economy, not the debt, that matters. Borrow cheap yen now. Pay it back later. That is how it works, people. All a tax is going to do is slow consumption, which will slow growth.

Someone above whined that interest rates could go up quickly. No. Japan finances debt at extremely low rates, which are mostly locked in for 30 years. Japan, unlike Greece, could also revalue its currency if it needed to. Someone has mistaken the yen for a drachma or a ruble, I think.

Fadamor: "Japan needs to get back to a balanced spreadsheet." Let me ask you -- why? Simply why? It seems reasonable to think that government should be "balanced", etc. But really, what good does that do anybody? "Balanced" seems like an extremely vague and arbitrary term. How can something so vague be so important? Don't just give a quick answer to tell me I am wrong, really think about it. Question that assumption you have made. Should the government be a company? Credit is a tool by which people borrow money when they need it, and pay it back later. Japan can borrow money from numerous sourcees cheaply, and people are more than willing to lend, so what is the problem? If your answer is "Well, debt.. it ... it's just wrong!" please say that.

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Klein2, you still seem to think that interest rates will stay low for the foreseeable future. However, if Japan credit rating is downgraded, as expected, interest rates will increase. Even a small increase will be painful. It is OK to lend, but one day creditors want their money back. Right now, savings rates are almost zero (is it 2%?) so the demand for bonds is decreasing and there is a strong possibility that Japan won't be able to emit debt as cheap as it used to be.

Borrowing now to finance growth through education or energy and recycling projects, etc. is the smart move. Japan has tried tens of such Keynesian spending plans and none of them has worked. Isn't the solution to let the economy adjust? The growth will come when Japanese business environment will adapt to 21st century. A big part of local business is inefficient, protected by trade barriers and government loans.

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I agree with Klein2 on the value of investment in the economy.

We have seen in historical examples where borrowing to bolster an economy has worked. We can't borrow just to spend. But borrowing for programs that lead to economic positives is indeed a good strategy.

Education: Japan can invest in greater education for her populaton. Revision in this sector could open Japan to providing highly educated technical and professional labor for the future. Free or heavily subsidized education programs would raise the value of Japanese workers and result in greater business opportunties as well as attracting more foreign investment. This makes a great deal of sense.

Job Creation: Again there is the opportunity to create jobs and develop new industries. For example Japan, with heavy investment, could become the global leader in Green technology. Funding good ideas and promising companies would be a great investment in the future of the nation.

And there are many other options.

Where we see things differently is that I do believe tax reform is important including increased taxes in some areas. Specifically high taxes on tobacco and alcohol which are both social problems in need of being resolved.

Second I do strongly believe that eliminating taxes on necessities is necessary for the well being of working and poor people in Japan. To offset that a rise in luxury tax does make sense.

Beyond these points there need to be substantial revisions in how business is conducted in Japan. Starting with the breakdown of monopolies and barriers that prevent the better development of small business and foreign business in Japan.

Japan also needs immigration reform to better enable foreign workers to work here and to integrate into Japanese life.

Most importantly, Japan needs leadership that is not corrupted by the standing obligations of existing parties. Japan needs a new, far more idealistic political shift to take the country forward and secure her role as a key Asian leader for the future.

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Consumption tax should increase gradually. The gov't though is slow and afraid to act thus we will experience a major spike in consumption tax at once.

As for Kan and his reduction in corporate taxes. Well that just helps define just who Kan and company work for. Certainly not Taro average worker. There is this myth that corporations will invest the tax savings in job creation and investment. When history shows us that the savings usually end up in share holder pockets or those of the execs. The idea that corp tax reductions will help the economy enmasse is a bold faced fabrication.

You are misinformed. Lowering corporate tax attracts foreign investment and entrepreneurship - we desperately need both of these. Successful execs and investors should profit for their efforts, risks and contributions. Currentlty why start a company in Japan when you can go to HK or Singapore for half the tax cost.

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Japan needs to reduce their amount of social spending across the board and encourage more foreign investment. Japan should start off by reducing the retirement wage to 20-30% of you last monthly wage versus the 2/3rds or so it is now. This would encourage people to invest more in the stock market to supplement their retirement which would help to stimulate growth. But just like we are seeing in Europe once people get a taste for government handouts it is very difficult politically to take them away.

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"Lowering corporate tax attracts foreign investment and entrepreneurship" In ideal conditions. But we have seen again and again that these savings are consumed by the companies and not shared out to society.

Industry has done all it can in recent years to reduce head count, limit wages and press more and more jobs into single person responsibilies. This means people are working harder/longer and not getting ahead.

Where in this plan does Taro worker get consideration? Are there going to be conditions for these reductions? Such as a % of those reductions must go into hiring or wage increases for workers? Will there be limitations on layoffs or rules about unpaid OT?

We spend far too much energy granting priviledge to corporations when we should be spending money on local micro economies that really do benefit local communities.

The future of consumerism will evolve towards local economies that do not waste energy on global imports, but instead produce products right here. This will happen due to rising energy costs, diminishing supplies and the environmental need for green solutions.

If breaks are to be given, then they should be given to micro-economic solutions that generate local economies and the jobs that would come with it. This is the kind of investment we need not more gifts to big business.

Foreign investment here needs to be in ways that generate jobs and builds up local economies. I am ok with decreased taxes, but they must come with these conditions. Otherwise you are just giving charity to companies who will not benefit local communities or workers.

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Sorry again on the administrative corporate bodies that consume much tax revenue while doing useless business as we all know without regard for cost performance. They are kind of resort villas for bureaucrats who descent with budget from affiliated ministries for amakudari after retirement. More than 300 trillion yen of debt the the government has accumulated for these bodies are in other words the government's credit to them. So if you abolish them, you won't have to pay trillions of yen annually to them from the national treasury anymore and at the same time can liquidate what assets they have and reduce the government debt substantially. Slush on these corporate bodies as well as on the "special account" of this country (please someone lecture us on this weird deposit of pooled money) is what is expected of the new government. But Kan's leadership seems to have been beautifully brainwashed by the Finance Ministry or usurpers of the national wealth in Kasumigaseki.

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Where in this plan does Taro worker get consideration?

He gets a job. Foreign direct investments and start ups hire people. Put up obstacles and taxes to over-protect Taro from working too hard results in no new investments and no new jobs.

The gov't is smart to lower corporate tax, raise consumption tax and cut public spending.

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Porter. In theory corp taxe reductions work. But in practice it simply does not hold water in recent years. Companies are not generating huge numbers of jobs. And many that are being created are underpaid and overworked.

I am fine seeing breaks for companies that sign on to be good corporate citizens, but then how many will be willing to do so?

The government would be better off giving substantial breaks to small business, domestic and foreign, and in encouraging entreprenuership that would generate jobs in local economies.

Denial is keeping too many people from recognizing that globalization will eventually be curtailed due to declining oil supplies and rising environmental considerations. The only rational approach is to start to invest in local micro-economics to bolster economies of local scale. This will generate jobs, tax revenue and opportunities to improve energy consumption.

While I am not 100% against corp tax reductions, I think they need to come with a caviat that requires certain behaviors in order to qualify for them. Those should include job creation, civic responsibility and adherence to labor laws. Then and only then should they qualify.

As for consumption tax rising. It is easy for you to say raise it because you are not poor. But 17% of Japanese are and another large percentage are just getting by. If you want to stop spending, stagnate growth, kill off small business and drive further devaluation raising sales tax across the board is the way to achieve these things.

But if you wish to generate business, protect the poor and lower working classes, then you must have new taxes that make sense. And I have already laid out a plan that would include elimination of sales tax on necessities, raising taxes on non-essentials and luxuries and heavily taxing tobacco and alcohol. So why would you then need a blanket sales tax hike?

My plan avoides the negatives while delivering the positive tax results.

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Hah. Governments don't provide any service. They are leech organisms that suck the life out of otherwise productive members of society.

Every thriving economy in the history of the world has been brought down by a thieving government.

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Gaijinfo, you couldn't be more wrong. If governments were really only "leeches" on the economy, then Somalia would be the richest country ever... Yeah, it doesn't work that way. The government, at the very least, needs to be strong to offer a stable environment in which economic activities can happen. To use an analogy, governments don't build the house, but they make the foundation on which the house can be built.

By the police and the judicial system, a government insures people that their rights will be protected, and so they don't have to be afraid to deal with other people. By the education system, a government makes sure that the population is knowledgeable enough to be functional in an economy that require more and more aptitudes by the work force. By the roads and transportation policies, a government makes sure to facilitate trade between different regions of the country. By health policies, a government improves the well-being of its citizens and reduces the loss of productivity due to avoidable illnesses.

In short, a government is a bit like an administrator, it may not directly produce much of the economic activity, but it's because of it that much of that economic activity can take place. To believe that the government is just a "leech" on economic activity is to basically take the position that all administrators, from the supervisor to the CEO, are only leeches on productive activity done by workers.

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Wow - citizens are railing against a tax rise. What a shock! Let's all hope the J-Govt. has the guts to do this - I for one think 10% is NOT ENOUGH! HIT 'EM HARDER I SAY!

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Japan is already facing destruction, for many reasons. Raising the Consumption Tax to 10% will just be the final nail in the coffin.

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Moreover, he adds, Japan’s sovereign debt, unlike Greece’s, is held overwhelmingly within the country

Held by people close to or already retired in the form of government issued bonds. What happens when this massive group of aging people try and cash them in en masse? A collective run on the bank.

What happens if nobody buys Japanese products? Since it is a closed system, Japan will dive headfirst into poverty, and self sufficiency (which isn't good, by the way.)

Back to the farms, people. No more Akihabara for you.

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"This isn't even an argument. Time to pay up"

No, it's time for the government to quit wasting money, and maybe even cut the tax.

Japan did fine without a consumption tax until 1989.

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OMG, please correct. descent → descend; slush → slash. Anyway don't be fooled by lies floated by the Finance Ministry and mass media. The sales tax of Japan is levied broadly with the number of tax-exempt items very limited. So the percentage of sales tax in the total national tax is 22% and is not especially low compared with 22.5% of Britain and 22.1% of Sweden.

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Not sure if 10% tax will "destroy" Japan, still remember the 3% tax-period.

Yes, things will be a bit tougher and tighter till everybody adjusts to it, that means citizens as well as businesses.

Might be a rough 2~3yrs but in the long run things will balance themselves out again.

Just my view.

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