Abe still neutral on whether to raise sales tax: Amari

I’m a little concerned that this robustness is a bit weak

Quote of the week.

Idiots, the lot of them.

I am a simple man, still use my fingers to count on ocassion, so can Abe or any of these other fools explain to me how an increase in tax will reduce government debt if the government spends over a 100% of what it takes in? And how about all of the other taxes that pour into the glutton's coffers in Tokyo and the rest of our regional and local government offices; there are the income taxes, the property taxes, the price of gasoline is 45% tax, the car tax, the inspection/shakken fee is again 40%~50% tax, etc. etc. etc. I mean, jeezus, how much do you really need? The average Japanese elected official makes 22,000,000 yen a year (about US$200,000) and the national civi servants aren't far behind. You are taxing and spending yourself into extinction. Japan depends way to heavily on taxes to support itself and it needs to change. What happens if this continues? Mass flight from Japan by tax payers--don't worry, the ones getting supported will stick around---and economic death. See my hometown of Detroit for an example of the tax-spend-die philosophy employeed by corrupt politicians and civil servants for an example. Set your browser's safety on "high" if the images of homeless and/or dead people bother you.

Idiots, the lot of them.

No he isn't. The decision was made a long time ago. To back down now, to surrender to logic and address wasteful spending instead, would mean our Dear Leader loses face, which cannot be allowed to happen, when there are so many pockets his elite can dip into. Who cares if we stop spending? The Five Families will be taken care of.

We all have the patriotic duty to pay off the damage caused by LDP mismanagement and corruption for the terms of our natural lives. Time to start packing, I fancy.

GDP is expected to claw back 3.6% in the July-September quarter,

And pigs will fly. Unless Abe can quickly borrow and spend a few trillion more yen, and add these to his economic "growth" figures.

Unfortunately , completely-neutral does not exist. Clearly, Abe is borrowing time for something that is inevitable.

It’s irony, hawkish Abe is becoming a dove so to speak.

Abe faces a tough decision by year’s end on whether to raise the tax for a second time - doubling the tax rate over 18 months - in a bid to curb Japan’s runaway government debt.

raising taxes does not curb debt, cutting spending curbs debt. i would like to see an accounting of what exactly did the additional 3% in sales tax pay for?

http://www.japan-press.co.jp/modules/news/index.php?id=7437

No easy options for Abe.

Go ahead with the tax hike and of course the economy will suffer some short term pain at least, or a recession at worst (the median JT commenter's forecast). If he goes this route what he needs to do is really boost his 3rd arrow, both in scope and speed of implementation, rather than waste money with government spending trying to cushion the blow.

On the other hand if he opts to cancel or postpone the tax hike, it's like staring down the barrel of Dirty Harry's gun hoping that you're going to get lucky with the financial markets, which could have dire consequences for everyone, including Abe's name in the history books. You might get lucky, but you might not. If he doesn't want to try his luck like this then he's going to need to produce some very realistic and feasible alternative plans to address the fiscal deficit, i.e. by reducing government spending instead, but again this is likely to cause some short term pain to the economy at the very least.

delaying the move could shake investors’ confidence in Japan’s ability to repair its tattered finances.

I guess those investors are overlooking the fact that PM Abe's plan doesn't include deep spending cuts, or serious reduction on business and income taxes.

The tax rise may make investors in "paper" happy, but, what about entrepreneurs, and small business? Devaluing the currency while (needlessly) raising costs (which had already been high) won't help the country's finances.

Japan's fiscal situation has nothing to do with a lack of taxation. The government spends way more than it takes in. More tax revenue can only come from more economic/business activity. Higher taxes don't promote more activity.

PM Abe and those who support the tax hike are out of touch with economic reality. A workforce with stagnant salaries isn't going to spend more of its heavily taxed money because Abe expects them to.

Investors should be more concerned about economic growth, both now, and in the future. If Abe presses ahead with the increase, government finances will get worse, not better.

I think Mr Amari meant to say that Abe is "completely clueless" on whether to raise the tax. He doesn't know what to do as Abenomics has failed and the usual LDP tactic of spending money building stuff doesn't work either.

There is little to be achieved if higher taxes are coupled with higher inflation. I think Abe should go back to focusing more on boosting domestic GDP. He can start by not raising sales tax.

JBinJapan,

The tax rise may make investors in "paper" happy

It'd sooth their nerves. Making them happy sounds like a stretch.

Investors should be more concerned about economic growth

Investors are the ones risking their money and thus have a right to be concerned with whatever they wish. Of course growth would be great but they don't want to see the government's finances fall into further disrepair either, this is just the reality. Fixing the finances is not something that can be put off forever, and doing so is only going to make things harder to resolve later as Japan's demographics are not getting any kinder.

If Abe presses ahead with the increase, government finances will get worse, not better.

Government finances will get worse in any case since the tax hike alone isn't enough (it was merely a first step towards their initial goal of eliminating the primary balance deficit by 2020), but the pace at which finances worsen will most probably slow because of the tax hike increase (an improvement to that extent).

But as you are mostly concerned with, there is a trade-off with the hit to the economy from starting to fix the fiscal problems. Whether you raise taxes or cut spending, either way you get some kind of negative impact on the economy initially. Or we forgo both and risk a hit to confidence in government's finances as they continue to get worse and worse. This is just the "give up, too hard" option, and absolutely the worst IMO.

No easy / smart options, only tough ones. Whichever route the government chooses they will be criticised, unless they can really show some guts, be honest and start by eliminating some Diet members as a symbolic show of unity with the public.

@JBinJapan. "Investors are the ones risking their money and thus have a right to be concerned with whatever they wish. Of course growth would be great but they don't want to see the government's finances fall into further disrepair either, this is just the reality."

Intelligent point. Fair enough. Investors are more-or-less floating the country now.

"Government finances will get worse in any case since the tax hike alone isn't enough (it was merely a first step towards their initial goal of eliminating the primary balance deficit by 2020), but the pace at which finances worsen will most probably slow because of the tax hike increase (an improvement to that extent)."

But the first step to eliminating debt is to stop adding to it. If the government wants to increase the taxes then it must show that it will reign in its spending. In 1997 the public was promised that the tax increase would be matched by corresponding spending cuts. They lied; they spent and borrowed more. We are now being sold the same gaggle of promises and threats and we're not buying it this time unless the government shares in the pain. Don't misunderstand me, I think the majority of Japanese would be willing to share in the sacrifice of higher taxes but "share" is the operative word.

"No easy / smart options, only tough ones. Whichever route the government chooses they will be criticised, unless they can really show some guts, be honest and start by eliminating some Diet members as a symbolic show of unity with the public."

Excellent idea. We should begin with the Upper House, the so-called "chamber of wisdom." Did you catch the news about the diet not being able to meet because some woman decided to wear a scarf which is in violation of some rule which irritated some other people .......our taxes in action! Thank you for a thoughtful, well-written post.

samwatters,

I enjoyed your comment too, thank you.

But the first step to eliminating debt is to stop adding to it.

Sure, that's the "cut spending" option. Indeed we haven't heard anything about this from the government, yet their deadline of 2020 to eliminate the primary balance deficit draws ever closer. And even if they do achieve that target, they'll still be adding to the debt at that point anyway, because the primary balance doesn't include debt servicing costs (about a quarter of the budget).

But given that consumption tax hikes were only a first step towards this 2020 goal, to me it's just pathetic if this country can't even take those initial steps without everyone going off the rails about it. If it's really so bad then I'm afraid that Japan is probably in a worse state than I have given it credit for.

Excellent idea. We should begin with the Upper House, the so-called "chamber of wisdom."

There are a few guys in the upper house that I like, so I'd rather see the lower house and upper house reduced by similar proportions, or otherwise proportional salary cuts for the lot of them. This way hopefully the useful ones get to remain. But we're dreaming about this happening while LDP is in power!

“The recovery trend is certain,”

I'd say it's not certain at all, given the uncertainty over raising the consumption tax again and the fact that everyone knows Abenomics is failing. This is the second time in a week that "neutral" is being used as a euphemism for "no idea what to do" or "completely frozen".

In any case, it's already been decided. Abe's just taking the time to try and figure out how he can lessen the backlash to the LDP in the next election -- he doesn't give one iota about how people will suffer as a result of his actions.

“I think he is completely neutral” on the decision, Amari told a talk show on public broadcaster NHK.

hope Abe himself answered questions rather than his ministers on his behalf. looks like "abenomics" now somewhat lost leadership.

Has Japan ever cut spending? Have they closed universities that don't need to exist anymore because the only way to get students for them is to grant scholarships to students in Asia and have them attend? Have they let defense expenditures fall, ever? Have they said, you know, there won't be that many people to ride this Shinkansen to Hokkaido (Shin Aomori to Sapporo, being built now), maybe we shouldn't build it? Did they stop bankrolling whaling, which would disappear overnight if it weren't for government subsidies? Did they stop building roads that don't need to be built, or bridges to nowhere? (Well yes, when the Minshuto was in power, but not the country as a whole.)

The only cost savings to the government has been changing health insurance so that it covers only 70% of expenses, instead of 80% (or possibly 90%) as it did when I came to Japan, and a token lowering of retirement bonuses for public employees a few years ago. Nothing else has indicated Japan will ever restrain its spending in any way.

I love this country but it's a basket case. I wouldn't invest here at all, other than in my own business, which I invest heavily in because I know I can trust myself, at least.

Actually, defense budget dropped a bit from 1995 to the past couple of years.

During the time Minshuto is in power, in one year, social security somehow managed to jump sufficiently for a 50% improvement in the nation's defense budget.

What you are ignoring is that while education and public works are minority members of Japan's budget, and compared to them, defense is a real minority yet again. The glut is social security and degrading health insurance is attacking the glut, yet it receives your contempt. It is no wonder the glut never gets attacked.

Dead right Kazuaki, the majority of new spending in recent years has been in social spending. But still, they could cut the entire budget there (some 30 trillion yen?) and still have an overall budget deficit, such is the mammoth size of the problem.

Is it really smart to tax food (not junk food), diapers,medicine ... the staples of existance? Rich people do not care, but the commoners surely do!

About an hour ago I finished up with yet another bureaucrat (METI) who deliberately works until 2:00 in the morning on a daily basis to claim unnecessary overtime and then take a taxi back to somewhere in Kanagawa from Kasumigaseki, which gets billed to the tax payer. The stated job was "preparing the document for a meeting." It is this type of extraordinary waste that needs to be addressed. No one should have the right to rip off the taxpayers for 7 hours per day of totally unnecessary overtime pay plus taxi. But there are thousands and thousands of them doing this to us every day. Ban all this silly overtime, ban amakudari, ban taxis home after work; do all this before you further mess up the economy with yet another tax hike. But no, of course not. The elite cannot be attacked in a country that is in so many ways still feudal. Abe is not neutral on the tax hike. He decided to hike this tax again ages ago and is just pretending the decision is not made because there are elections coming up soon and he wants the Japanese people to believe he thinks about them, which is only true for the top 2-3% of the country.

Hampton: hear hear.

Anyone in an office job, whose salary comes from the public purse, should not be allowed to claim a moment in overtime pay or get free taxi rides home for the sole reason they have prioritised "giving the illusion of being busy" over "doing your job right".

Spongers, the lot of them. It makes my blood boil that everyone else is expected to subsidise this deranged kabuki of busy-ness. Cut bureaucratic waste first - and as Peter Payne notes so wisely above, that includes the billions p!ssed away on the charade of whaling - and then come to me with your hands out asking for money I earned doing my job right.

shonanbb,

Is it really smart to tax food (not junk food), diapers,medicine ... the staples of existance?

It works fine in places such as New Zealand... As their government's homepage states, "A flat rate [sales tax] is simpler than the systems used in many other countries where similar taxes are applied at confusingly different levels for different products and services."

Simpler tax systems are always better.

If it's truly the needy that we are concerned with, why not just focus resources on helping those who are in need than making a simple tax a complicated one? Here's the thing - you could remove the sales tax on whatever stuff that needy people need/want to buy, but you still don't guarantee that they won't be needy by doing so. They could still need help. So can't we just leave the simple tax system out of it? The Komeito party and other proponents haven't thought this through properly, they are just looking for gimics to attract votes if you ask me.

I'm sure many citizens are neutral whether to throw eggs at his office window or not.

The single-rate / multi-rate of consumption tax issue seems to be controversial at JT, but before voting me down for suggesting such blasphemy as the single-rate being better, here are a couple of pieces on the topic from more authorative sources than myself to consider:

From Singapore: http://app.mof.gov.sg/data/cmsresource/videos/Transcript%20Should%20we%20exempt%20basic%20necessities%20from%20GST.pdf

From the OCED: http://www.oecdobserver.org/news/fullstory.php/aid/3509/VAT_s_next_half_century:_Towards_a_single-rate_system_.html

My advice to Shinzo would be to talk to people who actually understand how economics and the monetary system work, and stop talking to the ideological, intellectually bankrupt, stooge academy educated fools at the Bank of Japan and the Ministry of Finance. But I'm sure he would never do that, so no point.

And big thanks to the fool Naoto Kan for bringing back this consumption tax idiocy after it had been buried AFTER THE EXACT SAME THING HAPPENED when they raised it the last time in 1998.

From your Singapore link -

they could completely offset the increased VAT to be paid by the poor by raising means-tested benefits

How does that benefit in any way the 2 million poor who fall through the benefits safety net? Why would a bureaucracy that finds it difficult to sort out what's an essential item and what isn't, find it any easier to search out the needy, or go to the trouble of making sure they get the help they need? There is no sign of them having done it so far in Japan.

From your OECD link -

in the UK, "ending all current zero and reduced rates (except for housing and exports) while increasing all means-tested benefit and tax credit rates by 15% would leave the poorest 30% of the population better off

But the Japanese and British welfare/benefits systems are two completely different animals. The Brits are well up on working out what they're entitled to, and making sure they get every last penny of it, while in Japan, and particularly among the aged who are more likely to be in dire need of help, there is still the impression that there is something shameful about accepting financial help from the state. What would work in the UK would not necessarily work in Japan.

Abe faces a tough decision by year’s end on whether to raise the tax for a second time ... in a bid to curb Japan’s runaway government debt.

The way to curb debt is to stop spending money on stuff the country doesn't need/can't afford. Cut the' salaries, perks and bonuses of politicians and top civil servants - if they can't keep the country solvent they aren't doing their job and don't deserve bonuses. Allow them say, 150% of the national average salary, then watch them scramble to raise national incomes across the board. Stop subsidising whaling. Stop paying the (supposedly) voluntary omoiyari portion of the cost of US bases in Japan. Ask some more solvent country to take the 2020 Olympics. Cut everything that can be cut within reason and if there's still a shortfall, then and only then, consider taking more off Mr and Ms Average Taro.

"Allow them say, 150% of the national average salary, then watch them scramble to raise national incomes across the board."

@Cleo. Now THAT is an idea worth considering!! Does anyone know if such a proposal can find its way to the ballot box? It varies but in the US an initiative must be proposed and voted on if 20% of the community or 20,000 people sign the petition. Is this possible in Japan?

cleo,

I know you like the idea of multi-rates (the OECD article notes how it is politically preferable in some cultures), but I see no evidence that a multi-rate system would be better policy in Japan's case.

Personally I don't think the bureaucracy ought to go out and actively hunt for people to give other people's money to. If people are in need, surely they'll come a knocking? If someone doesn't go a knocking, then that's their individual decision, is it not? So what if people opt to not accept financial help from the state?

The way to curb debt is to stop spending money on stuff the country doesn't need/can't afford.

Sure. Problem is, if you take a look at how Japan's budget spending is allocated it's obvious that social security spending needs to be cut, no matter how you dice it. All the other spending you mention is chicken feed by comparison. Of course whatever is democratically agreed to be wasteful spending should be cut, but frittering around the edges of the budget isn't going to stop the snowball's rapid descent.

Want to boost consumer spending? Eliminate the consumption tax altogether. Not only would that result in more consumer spending, but also in increased demand resulting in more and better employment. It would also require actual spending cuts on behalf of government spendthrifts. Never happen.

Simpler is better, and especially less costly. Just see in France all the irks and waste of time of each corporations to get reduced tax. Flat tax is modern solution. The more complicated, the more umanageable it is. Experience tells.

If people are in need, surely they'll come a knocking?

Not if they don't know they're entitled they won't. Some 2 million of them don't.

it's obvious that social security spending needs to be cut, no matter how you dice it

So you want to boost social security spending on the needy to offset the tax increase, at the same time that you think social security spending needs to be cut? Does not compute.

Thank you, Brother Jonathan Prin!

John Galt, If we must lower tax rates to boost consumer spending, why not lower income tax rates instead of the consumption tax? So long as government needs to collect revenues at all, the consumption tax seems to be one of, if not the best ways to do it (in terms of efficient revenue collection). And people who don't want to pay much consumption tax can just not buy unnecessary junk. It's fantastic.

It would also require actual spending cuts on behalf of government spendthrifts.

If only that were true. The Japanese government just borrows whatever money it wants to spend but has no tax revenues for. At least until now. Not sure how it'll work when the BOJ stops financing the spending (and if they don't stop then that'll probably have it's nasty consequences too).

cleo,

Not if they don't know they're entitled they won't. Some 2 million of them don't.

OK, so it's out of lack of awareness of the financial support they could be getting, rather than shame, then I can accept some more spending there on hunting for needy people to get up to speed. But I'm not sure where the 2 million number comes from.

So you want to boost social security spending on the needy to offset the tax increase, at the same time that you think social security spending needs to be cut? Does not compute.

Well sure it does, you just need to spend the money where it is necessary, and not spend it where it isn't. I'm saying the social security spending needs to be reformed. Same goes for most parts of the Japanese budget, but social security spending is the biggest chunk by far (30%) and has been increasing rapidly due to the demographics. Your debt servicing budget (25%) can't be cut because that would mean the Japanese sovereign defaulting, so useless or unaffordable spending within the 30 trillion social security budget and elsewhere must be identified and eliminated. To the tune of about 40 or 50 trillion yen. Big numbers. People talk about white elephant projects but you could cut the entire MILT budget and that's only 6 or 7 trillion, and some of the roads they build are probably useful too.

Spending cuts won't be coming under an LDP government, so hopefully they at least don't make matters too much worse before the spending cutters get elected.

Want to boost consumer spending? Eliminate the consumption tax altogether. Not only would that result in more consumer spending, but also in increased demand resulting in more and better employment. It would also require actual spending cuts on behalf of government spendthrifts. Never happen.

Good point, John Galt. I don't see it happening, but, it would go further towards boosting consumer activity. My main concern is that the government won't stop at 10%. As the economy contracts even further, the government will go to its old stand-by, tax hikes (either on income, business, or consumption).

High VATs hurt the working poor, and those on social assistance. Look at England, and the impact high sales taxes have had on the lives of those near or below the poverty line.

why not lower income tax rates instead of the consumption tax?

Now, here I agree with you 100%, fxgai.

Income tax from the federal government, and ward offices aren't conducive to high consumer spending. In fact, I think taxes should be cut across the board. Taxes on profits, overseas purchases, property (land and house), etc.

High VATs hurt the working poor, and those on social assistance. Look at England, and the impact high sales taxes have had on the lives of those near or below the poverty line.

Seems it didn't turn out that way in New Zealand, though. They've had a flat consumption tax rate there for years, and even after the last government hiked it, they got re-elected again anyway.

So maybe the UK government did something wrong.

In fact, I think taxes should be cut across the board. Taxes on profits, overseas purchases, property (land and house), etc.

I'm not sure that reducing tax rates on all that would boost revenues (where are we on the Laffer curve?). Sounds like New Zealand reduced income tax rates when they raised the consumption tax rate, so perhaps that is the way to do things.

I'm not sure that reducing tax rates on all that would boost revenues (where are we on the Laffer curve?). Sounds like New Zealand reduced income tax rates when they raised the consumption tax rate, so perhaps that is the way to do things.

Long term, if tax rates are reduced, there's more disposable income, more post-tax profits. People can either invest, save, or spend more money. Businesses have more cash to expand, hire more people, increase wages. Government revenues are derived from economic/business activity. More activity, more revenue.

If the government had left the sales tax at (the very reasonable rate of) 5%, and reduced taxes on income and profits, the revenue gained would have exceeded what they'll get from 8% now.

Look at what people did prior to the tax hike, and look at the economic data now. Without more disposable income, and more post-tax profit, the government won't bring its debt under control.

As you said, New Zealand reduced income taxes, so the impact on working people may not have been that bad. However, the working poor's interests aren't really served artificially inflated prices, and higher living costs.

More activity, more revenue.

It might work out like that, but it might not.

At some point lowering tax rates will lower tax revenues. If the tax rate were zero the government would get zero tax revenue.

So what non-zero tax rate would raise the most revenue, and where is that optimal rate relative to where we are now? I don't personally know one way or the other, but the forecasts are that the consumption tax will raise extra revenue, and until the actual figures come in I'm inclined to believe the forecasts are right that there'll be a revenue increase, rather than a decrease. If there is a decrease then certainly it would be a signal for Japan to cut taxes, and I'd eat my underpants, too!

Without more disposable income, and more post-tax profit, the government won't bring its debt under control.

That would need to be the greatest economic miracle ever seen considering Japan's demographic headwinds, and to achieve that sort of growth we'd need the biggest shift in Japanese economics and politics since the Meiji Revolution or the end of WWII. Japan never changes much, in the absence of a catalyst.

It might work out like that, but it might not.

We'll never know unless we try. If prices are artificially inflated, people aren't going to spend more money because they won' t be able to. That's a fact.

No one is saying taxes should be at zero. What I am saying is that people here, and around the world, already pay too much in taxes. If taxes aren't going to be cut, they should at least remain at present levels.

I'm inclined to believe the forecasts are right that there'll be a revenue increase, rather than a decrease.

The government will of course get extra tax revenue, bur, as the economy shrinks, the revenues will flatten out-not go up. People will save more money, or move their capital to a more market friendly environment. Also, if the government doesn't cut spending, whatever extra revenue that it gets will be for naught.

Spending cuts, and more prudent use of existing revenues would be a far more effective option than just raising taxes.

That would need to be the greatest economic miracle ever seen considering Japan's demographic headwinds

It wouldn't be easy, but, saying it would require a miracle is exaggerating. Free trade, and foreign investment could mitigate the demographic situation.

Businesses with higher post tax profits are more likely to offer jobs and higher wages. People with more discretionary income are more likely to spend more money.

Japan never changes much, in the absence of a catalyst.

Higher net incomes, and higher post tax profits would certainly be a catalyst for economic growth.

People with healthy salaries, working for profitable growing businesses create revenue. Foreign investment, and trade lead to job creation. Entrepreneurship, and small business also create jobs. These bring in economic growth, and more, subsequently more revenue.

What a bunch of malarky, Abe is dead-set on raising the tax to 10%, on food and beer too! Cripes!