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Abe vows to keep careful watch on tax hike's impact

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Abe's going to carefully continue to do nothing, is more like it, while afraid to get off his hands and admit the decision has already been made. If it's taken him six months to realize what a failure his economic plans have been save to the already rich, then there's no way he's going to stop and start thinking of Joe Tanaka now. He simply has no idea how he can break it to the public without damaging his already sliding reputation.

“A major mission of the Abe cabinet is to make people in every corner of the country feel the economy’s recovery.”

Mission accomplished! as long as that mission was to screw everyone but the rich.

9 ( +14 / -6 )

Thanks smithinjapan - you took the words right off of my keyboard! Somehow most people are still hopeful - I lost all hope. :(

4 ( +7 / -3 )

For a second, consider that if Abe doesn't stick with the already-embedded-in-law tax hike, he may roil financial markets.

Would (for example) the risk of higher interest rates be acceptable as a trade-off? Folks would be spared the extra consumption tax, but hows about the folks who end up paying an extra ? times 1,000 yen a month on their mortgages as a consequence? Is it fair?

Of course, cancelling the tax hikes might not see a rise in interest rates, as the BOJ is sucking up loads of debt which seems to be restraining interest rates from going up, at the moment.

But the impact of a consumption tax hike is pretty much known - just figure out your monthly consumption and figure out the bill at 10%. Then how about the impact of "higher" interest rates though? We don't know how high they might potentially go should the government give up on it's fiscal consolidation plans. Is it better to take the risk, or better the devil you know?

Besides this, everyone should be telling all their Japanese friends with voting rights to lobby their representatives to restrain lower quality government spending as an alternative to future tax hikes.

-8 ( +0 / -8 )

Since there is no economic recovery, apart from in the minds of Abe and Kuroda, it cannot be felt by people in every corner of the country, unless the corners of the country are the locations of the latest mindless construction blitz. Yes, the cheap yen drives up the Nikkei for those who can afford shares and it increases repatriated yen profits from exporters, but people getting poorer, lower wages, higher inflation, negative growth and a greater tax burden does not equal a recovery, particularly not in a rapidly ageing society.

5 ( +7 / -2 )

Abe's out no matter what, he raises the tax the economy fails he resigns, he doesn't raise it, he looks weak, resigns.

0 ( +1 / -1 )

This whole "let's see what happens if we do this" routine sounds like a group of children with a magnifying lens on a hot sunny summer day and a bunch of insects minding their own business. We all know what's going to happen but we just sit back, really doing nothing much because, well, what can you do? We hope they'll grow out of that stage but somehow the damage will be done by the time that happens. The imminent economic stall is coming should the consumption tax be raised to 10%. After that, who knows if Japan has enough 'altitude' to pull out of that stall or will it just simply crash and burn as a result.

5 ( +5 / -0 )

Mission accomplished! as long as that mission was to screw everyone but the rich.

I don't know any of the "rich" who haven't been screwed as well. The rich have seen their business fall as their customers are spending less. And of course, the rich have to pay the tax as well, don't they? The only of the rich who have benefited are those who are politically-connected.

0 ( +4 / -4 )

@fxgai

"Then how about the impact of "higher" interest rates though?"

How and why would interest rates rise? The fiscal debt continues to rise, and fewer investors are buying JGBs, yet there's been no rise at all.

"Is it better to take the risk, or better the devil you know?"

"Risk"? We already do know. The BOJ has done a very good job of proving over many years that higher debt levels don't necessitate higher int. rates in Japan's case. If anything, the reverse is true.

-2 ( +1 / -3 )

Decrease consumption tax to 2% make Japanese stuffs affordable (they are already expensive). Instead increase property tax (those who are above avg) :D

-2 ( +1 / -3 )

Abe, who came to office in December 2012, has not met bilaterally with the leaders of China and South Korea since taking office.

Isn't this an AMAZING oversight?

He's been all round the world hawking arms and nuclear power, but has not had the courage to face his closest neighbours!

2 ( +3 / -1 )

if he agrees to the TPP it would be easier to increase taxes without harm

0 ( +2 / -2 )

No leader can live by slogans alone in democratic society, the same holds true for Abe as well. He may be able to temporally raise his rating by hawking nationalistic sentiment or decorating his admin with few female elites or traveling around the world to proclaim ‘Japan is back’ … In the end, it’s the economy that would sway the voters most.

In America, there is a popular saying: “It's the economy, stupid.” Abe needs to take a note on that.

When public debts goes wild and tax bases are eroding, plus a hangover of first installment of tax hike, Abe’s overrated three arrows are rapidly missing the targets.

Hopefully, BOJ will be prudent on its monetary easing and avoid seeding a potentical crisis.

0 ( +1 / -1 )

JeffLee,

The way in which such a risk might manifest itself is raised in minutes of the meeting between the ministry of finance and primary dealers, should you actually care. But as you said of BOJ Kuroda once, they might all just be a bunch of idiots (as with the IMF, OECD etc) too?

I've stated it before, but I will just once more - your way of thinking about risk is reminiscent of the way in which people thought about the risk of accident at the Fukushima Daiichi plant, before it happened. Think about it.

The BOJ has done a very good job of proving over many years that higher debt levels don't necessitate higher int. rates in Japan's case. If anything, the reverse is true.

Yikes. At least Abe put Kuroda in the job rather than someone who subscribes to such a reckless way of thinking.

In_japan,

Smashing the property market with some distortionary tax doesn't strike me as being a great way of helping anyone.

-3 ( +0 / -3 )

Abe couldn't find his way out of a paper sack. The abenomics apologists make make me want to spew. Abe is so full of himself that he can't /refuses to see how badly he's dorked up the economy. And numbskull apologists fall over themselves making excuses.

Abe has succeeded in devaluing the yen to the joy of some exporters at the grave expense of the rest. The next tax increase will happen, and what's of the ailing economy will wither that much more.

2 ( +3 / -1 )

Tax raise wasn't that much of a difference if not coupled with rising energy cost, weak yen, inflation and the flood in Kansai. Last year I could buy a cabbage for 98 yen, these days ? 300 yen. From the perspective of everyday Japanese, a 200% increase is big, and it triggers the defensive mechanism in saving oriented Japanese people.

-1 ( +1 / -2 )

John Galt,

Totally agree with you.

Whoever it was, the bright spark who came up with the term "Abenomics" really scored a winner. I bet Abe loves it and is totally convinced he is Japan's saviour. I don't think there is any danger of him coming to any realisation of how badly he has dorked the economy.

His pride protects him.

-1 ( +1 / -2 )

kibousha, I'm not paying that for a cabbage where I live, but I agree with you about the defensive trigger in Japanese people. Prices are rising, as are taxes, and the Japanese mind-set says tighten the belt, not spend freely. Abe does not understand anything about economics. He didn't before and he still doesn't. He also understands nothing about normal Japanese people. He didn't before and he still doesn't. Why on earth did they put this clown back in charge of the country with Aso as his second in command? The country is being run (into the ground really) by perhaps the two worst PMs the LDP has managed to conjure up, with Mr Kuroda behind the scenes cashing in by agreeing with them. Abegeddon beckons.

0 ( +2 / -2 )

Meanwhile good ol' Taro Aso says the economy is recovering, incomes are up and, by golly, the consumption tax must be raised to 10%. Must be nice to live in his world.

0 ( +0 / -0 )

The only thing Abe will be watching is Japan's economy suffer more decline after he increases the tax next year. Then he will have a blank check to spend another 5-10 trillion yen that the government doesn't have, and will have to print and borrow from itself in order to further "stimulate" the economy.

3 ( +3 / -0 )

Abe, who came to office in December 2012, has not met bilaterally with the leaders of China and South Korea since taking office.

Going on two years, and both SK and China have not bothered meeting with Abe. Obviously they either don't trust him and/or they are not that concerned about relations with Japan. In either case, that is troublesome.

-1 ( +1 / -2 )

Lip service to feign interest in the people. I works on many too...

0 ( +0 / -0 )

@fxgai - why do you assume interest rates would rise if the consumption tax is not increased to 10%? You're worried about roiled markets? First, who do you think would be the victim of roiled markets? Second, if the consumption tax were instead lowered is it possible people might consume more? And if they consumed more wouldn't markets rally? I agree with you though about cutting govt spending. @Sangetsu - the rich pay the tax as well, but consumption of daily goods is a smaller percentage of their total pie so it impacts them less. For a poor person daily consumption could be 100% of their after tax income, so 3% extra means they have to cut spending by 3%. The same items might be 10% or 1% for a rich person - the extra 3% on 10% of there pie is a change of only 0.3%.

3 ( +3 / -0 )

shiboritate,

@fxgai - why do you assume interest rates would rise if the consumption tax is not increased to 10%?

I don't assume that they would necessarily rise (they might not), but there is a non-zero risk that they might rise. If such a risk becomes a reality then things could get quite a lot worse than just having to pay extra consumption tax, which I can already calculate the personal impact of with certainty.

You're worried about roiled markets? First, who do you think would be the victim of roiled markets?

As post-Lehman showed, roiled markets can effect everyone, not just direct market participants. In Japan's case, should interest rates spike, any Joe Tanaka on a floating interest rate mortgage would be facing higher mortage payments (with exactly how much more an unknown, and roiled markets possibly leading to job cuts as well - hard to pay back a mortgage with no job). The head of the BOJ himself has said he would be largely powerless to deal with such an episode, and as such has urged the government to stick to it's plans.

Second, if the consumption tax were instead lowered is it possible people might consume more? And if they consumed more wouldn't markets rally?

There might be a little more consumption (unless people were like me and worried about the government's finances instead and battened down the hatches), but the markets have actually done OK inspite of the consumption tax hike.

For a poor person daily consumption could be 100% of their after tax income, so 3% extra means they have to cut spending by 3%.

Or try to get a better job. Everyone has options.

-3 ( +0 / -3 )

@fxgai - you are saying there shouldn't be any poor people because they can all get better jobs? I guess you don't understand the concept of a regressive tax, which is all I was trying to illustrate in my reply to sengetsu. So you think not raising the tax to 10% will cause something analogous to the Lehman shock? Of course those on fixed rate mortgages are sheltered and those on variable rate like me can easily switch to fixed. So despite the fact that I think a rate spike is highly unlikely, I think the impact of such an event on the average person would be quite limited.

0 ( +0 / -0 )

rising fuel prices on the economy?

Interesting. Where are Japanese economists?

US economists are predicting that oil price is going down to less than $2.00 from current $3.33/gallon by end of 2014.

This is the best time to test water (raising tax) gradually.

-1 ( +0 / -1 )

@fxgai - you are saying there shouldn't be any poor people because they can all get better jobs?

No, I'm just saying that everyone can make an effort to try to better their personal situation. I got your point on regressive taxes, but it's not like the only option a poor person has is to cut their spending. Why can't they look for a job that pays better? Is there some rule written somewhere that poor people will never ever be able to succeed in getting themselves a job that pays better?

The poor don't pay tax on income at the same rate as those better off. At the very bottom wrung I think the government needs to help people out, but my sense is that most in Japan can handle a consumption tax increase. I haven't seen more people out on the streets since the hike to 8%.

So you think not raising the tax to 10% will cause something analogous to the Lehman shock?

I think there is a risk (as does the BOJ chief and the primary dealers) that the government wavering on it's already legally determined course of raising the consumption tax could have negative consequences, the scale of which I don't know, unlike the cost of the consumption tax hike.

Of course those on fixed rate mortgages are sheltered and those on variable rate like me can easily switch to fixed.

But you would have to pay more when you switch to fixed, wouldn't you? That's why you are on floating now, right? I think you can see my point. The consumption tax will cost you - but so does an interest rate spike (unless you are already on fixed, in which case you are already paying more).

For me the reality is there are no easy solutions in Japan, but there are bad options and then worse options. I prefer the ones that are a known quantity.

0 ( +1 / -1 )

everyone can make an effort to try to better their personal situation

Thing is, if they had the wherewithal to better their personal situation they would have already done it. There are reasons people end up at the bottom of the pile, and it isn't always (or even usually) just because they don't try hard enough.

The poor don't pay tax on income at the same rate as those better off.

No, they pay proportionately much more. Say a person on minimum wage earns around 2 million yen a year and it costs them just that much to pay their daily bills; any extra tax at all cuts into their standard of living. Now say someone in a better personal situation earns around 20 million yen a year; they're not going to be scraping the corners of their wallet for the few extra coppers to pay extra tax.

I haven't seen more people out on the streets since the hike to 8%.

So as long as people aren't actually chucked out onto the streets, it's all OK? Wow. And of course if those people out on the street can't find any discarded onigiri in the waste bins round the back of the conbini, they should eat sushi, right?

0 ( +3 / -3 )

@fxgai - of course there's no rule that says poor people can't make more money - I certainly didn't say that. My point was only that the consumption tax is regressive and therefore hurts people with less income than those with more. You say you haven't seen people on the streets, but do you know what has happened to consumption patterns in Japan since the tax hike? You can deny it as much as you want and theorize about poor peoples' options but in the aggregate Japanese household spending is down about 5-6% from the previous year in each of the months following the tax hike. I don't think that's a coincidence.

0 ( +0 / -0 )

shiboritate,

My point was only that the consumption tax is regressive

Yeah I get that, but income tax is progressive. Only income over 3.3 million yen is taxed at rates of 20% or higher. Below that the brackets are 5% and 10% (and deductions etc reduce it further, I suspect). I think everyone who enjoys the benefits the society provides should be expected to make some degree of contribution, even if only 5%.

in the aggregate Japanese household spending is down about 5-6% from the previous year in each of the months following the tax hike.

Sure, but the economic contraction in the 2nd quarter was forecast by all economists, it's pay back from the boom in the 1st quarter. If the 3rd quarter still doesn't show growth than I'll concede defeat (and government may have to reform spending instead of raising the tax rate), but at this point I'm still thinking that 3rd quarter growth will be positive.

cleo,

There are reasons people end up at the bottom of the pile, and it isn't always (or even usually) just because they don't try hard enough.

Yeah I can understand that, but I think it's better for the government to go with targeted assistance where it's needed, rather than allow everyone (including the rich) a tax break.

I think most people do have the wherewithal to be able to adjust to policy changes. At the end of the day, if people weren't expected to adjust according to changes in policy, why should government even bother with policy at all?

No, they pay proportionately much more. Say a person on minimum wage earns around 2 million yen a year and it costs them just that much to pay their daily bills;

Well buying stuff isn't income tax, that's consumption tax. It's the income tax that is progressive.

So as long as people aren't actually chucked out onto the streets, it's all OK?

If the government doesn't take care of it's fiscal condition and the markets were to lose confidence in the government's seriousness about dealing with it's debt problem, it's conceivable that it'd be much worse for most everyone, if not those at the bottom most of all.

-1 ( +0 / -1 )

fxgai, actually I was talking about the third quarter. Household spending was down -5.9% in July vs last year and -4.7% in August. Do you want to make a bet on whether this quarter will end up positive or negative?

0 ( +0 / -0 )

OK sure. Household spending isn't the only thing that goes into GDP numbers, so I'll bet you my humble pride that 3rd quarter GDP growth turns a positive number despite the sluggish consumer spending.

-1 ( +0 / -1 )

The Japanese government had better sharply cut spending now.

1 ( +1 / -0 )

Nice head fake - we are discussing consumption tax, right? GDP is not an indicator of consumer spending, household spending is, and I am betting you that that number will be negative in the third quarter. Also, note that I am discussing year on year comparisons.

GDP, by contrast, is quarter on quarter - after falling an annualized -7.1% in the second quarter I would not be surprised if it was positive in the third quarter, but my guess is that it will be down year on year - and it has other components including govt spending (perversely, the govt suggested stimulus to support the declining economy following the tax hike) and net exports/imports (which is related to the FX rate which Japan periodically intervenes in).

0 ( +0 / -0 )

I think it's better for the government to go with targeted assistance where it's needed, rather than allow everyone (including the rich) a tax break

Who said anything about giving everyone a tax break? Just make the tax fairer by making it direct and progressive instead of indirect and regressive. Or at the very least don't tax essentials like food, basic utilities, education, children's clothing etc.

Well buying stuff isn't income tax, that's consumption tax. It's the income tax that is progressive.

I'm talking about consumption tax. 8% on everything they buy is a lot more to someone just scraping by than it is to someone who earns a lot more than they spend.

0 ( +2 / -2 )

shiboritate,

Head fake? I thought we were talking economic growth, not just growth or lack of in spending in particular. That's what I was talking about when I said in an earlier comment, "at this point I'm still thinking that 3rd quarter growth will be positive."

GDP ... I would not be surprised if it was positive in the third quarter

Seems we agree, then.

it has other components including govt spending (perversely, the govt suggested stimulus to support the declining economy following the tax hike)

Yes I think that is stupid as well. The government should just take it's medicine rather than poison the economy with even more debt.

net exports/imports (which is related to the FX rate which Japan periodically intervenes in).

They haven't intervened for a 3 years now since dollar/yen was in the mid 70's off the top of my head. If anything the next time they intervene they might be trying to prop the yen up rather than knock it down.

cleo,

Who said anything about giving everyone a tax break?

There is only one consumption tax rate for everyone, right? There is no means testing of the purchaser at the sales counter. So when a government opts not to tax what you term as "essentials" like food, basic utilities, education, children's clothing etc, every one gets the tax break.

Suddenly you have extra problems. For one the tax rate on "non-essentials" has to be higher to compensate (hurting discretionary consumption), but before you can even figure out what rate that needs to be, you need to get the bloated Japanese bureaucracy to define what "essentials" are. In Japan I am certain this would be a disastrous nightmare with all your politically influential groups proclaiming that their particular product is inherent to Japanese culture and therefore requires exemption. I'd rather the government had an anti-bureaucracy culture and let all consumers enjoy a lower rate.

Other places such as New Zealand where they also have the across the board tax rate (now at 15%) seem to do just fine with this system as well. I've seen no evidence that introducing exemptions is required, useful or productive.

Yes, consumption tax is regressive, but income tax is progressive. I do believe that even the poorest should pay some token amount of tax in return for what society provides for them.

0 ( +0 / -0 )

you need to get the bloated Japanese bureaucracy to define what "essentials" are. In Japan I am certain this would be a disastrous nightmare

Other countries do it. There is no need to imagine that there is some reason Japan is so 'special' it cannot do what others do. Unless you buy into a degraded version of nihonjinron, which I don't.

consumption tax is regressive, but income tax is progressive

-which is why consumption tax is bad and income tax is better (if any kind of tax can be said to be 'good'). Less bad, perhaps.

I do believe that even the poorest should pay some token amount of tax in return for what society provides for them.

I understand your sentiment and do not disagree with it in principle, but an across-the-board 8% on everything is far from being a 'token amount'. The original 3% was a token amount.

-1 ( +1 / -2 )

@cleo

-which is why consumption tax is bad and income tax is better (if any kind of tax can be said to be 'good'). Less bad, perhaps.

No need for apologetics. Taxes are good. They pay for the police, the roads, schools, hospitals etc.

Any normal person should be happy to pay. It's only rightist Neanderthals who can't see it.

Agree though, that income tax is fairer than consumption tax.

-1 ( +1 / -2 )

lucabrasi - Are you calling me a rightist? lol That would be a first.

I agree of course, any normal person should be happy to pay their fair share. And the way I see it, for those at the bottom of the pile (there but for the grace of....?) 'fair' would be as little as possible, i.e. no regressive indirect tax on essentials.

-2 ( +0 / -2 )

cleo,

Other countries do it.

But others like New Zealand, don't...

There is no need to imagine that there is some reason Japan is so 'special' it cannot do what others do.

It could, but Japan already has too much bureaucracy and the country is drowning in it as it is, without making it worse. Japan ought to be cutting bureaucracy.

the way I see it, for those at the bottom of the pile (there but for the grace of....?) 'fair' would be as little as possible, i.e. no regressive indirect tax on essentials.

I think there's two issues. One is efficiency of policy, the other is outcome.

My view is that in terms of efficiency, a simple across the board rate is much better. But then to acheive the outcome for the needy you target assistance specifically towards them. No problem, so far as I see. The tory government down in New Zealand recently got reelected with an increased majority despite hiking their consumption tax rate by 2.5%. It would seem it works fine.

0 ( +0 / -0 )

My view is that in terms of efficiency, a simple across the board rate is much better. But then to acheive the outcome for the needy you target assistance specifically towards them. No problem, so far as I see.

So the bloated bureaucracy that cannot possibly handle fine-tuning the tax system to ensure those on low incomes aren't paying through the nose in order to keep taxes on luxuries at a flat rate, would have no problem fine-tuning social welfare to ensure those on low incomes don't fall through the cracks? Sorry, but they're already failing on that score; there was a programme on telly just the other night about some 2 million old people forced to live on a pittance because they didn't know they were legally entitled to assistance, and officialdom did absolutely nothing to help them.

http://www.nhk.or.jp/special/detail/2014/0928/

0 ( +1 / -1 )

To be honest, I do not know why everyone is complaining about the tax hike... I have not even noticed the difference.

-2 ( +0 / -2 )

I have not even noticed the difference.

Most folk who have the time and wherewithal to lounge around on JT probably haven't noticed.

The NHK special programme I mentioned earlier said there are over 2 million living below the (pretty low) level at which social welfare kicks in. They are the ones who notice.

-1 ( +1 / -2 )

Cleo, To be honest, I only really care about me and mine...

-1 ( +0 / -1 )

"I only really care a about me and mine"

Yep. And that' s why the world is going to hell in a handcart.....

1 ( +1 / -0 )

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