The problem is that PM Abe (and many other politicians) sees the government as the economic driver of the country. Government should be more of a facilitator, promoter, not a navigator.
Strong arming traditional, large, established corporations isn't the way to go. Liberalizing the economy and lowering business taxes would be far more conducive to robust investment than pressing private businesses to make misguided government policy work.
Another option would be to open the Japanese market to more free trade and foreign investment. Competition (domestic or from aboard) leads to innovation, jobs, and investment.
A long term solution would be to support and promote Japan's small, but talented, startup community. Encourage people, young and old, to take up entrepreneurial activities and/or investments. Japan's population is certainly aging, but it is hard working and very well-educated.
There's nothing wrong with a job-type-job, but, it's not the only way people can make a living. The gig and sharing economies offer more opportunity and freedom than traditional employers (who aren't hiring people they way the used to). A mix of tax breaks and regulatory reform could make this happen.
QE, deficit spending, tax hikes, government intervention: these are archaic, Keynesian approaches that just don't work in the modern world.
Cut taxes on income and business, remove byzantine regulatory regimes, and there will be more consumer spending, investment, and growth.
0 ( +0 / -0 )
Revocation of the passport simply leaves the citizen without a passport. Citizenship is not affected, and remains the same.
@wipeout, I didn't mean they'd actually lose their citizenship. Just that the end result would have a similar effect.
Without a valid passport, it's very difficult to travel or return home to address tax debt. Also, renewing work visas overseas would be extremely hard, if not impossible.
1 ( +1 / -0 )
There's a perception that our American friends pay very little in taxes, but, it's actually the opposite. The IRS is as merciless, greedy, and inflexible as any other tax collecting agency in the world. Although, the Canadian Revenue Agency (I'm from Canada) is probably the worst of the lot :-)!
Revocation of passports, effectively citizenship, is as excessive (to say the least) as it is counter-productive. An expat behind on taxes can't begin to make payments if they can't renew their work visas, or travel back to the US to address the situation. However, governments aren't known for thinking its policies through, never mind being reasonable or fair-minded.
1 ( +3 / -2 )
An exceptionally well reasoned and coherent post, thank you. Would you consider the achievements of President Johnson in contrast as making a meaningful, transformative impact on the lives of the average person? With respect, which accomplishment of President Reagan pairs him with FDR?
President LBJ got the Civil Rights Act through, though he didn't create it. Certainly deserves inclusion in the list above. An unintentional omission on my part, though, I place Martin Luther King Jr higher than LBJ in importance to the civil rights movement.
Ronald Reagan was crucial to ending the Cold War. He, along with Russian President Gorbachev, helped the world become a safer place, even if it was in a relative way. I never agreed with ALL of his policies. He left office having doubled the US' national debt. His backing of despotic regimes in South America was appalling, even if it was to counter communist expansionism in the region.
However, he deserves recognition for his part in the Cold War's end, which led to the re-unification of Germany, freedom for countries like Poland. This achievement can't be glossed over, whatever we may think of his politics.
0 ( +0 / -0 )
What's galling is how easily suckered these people are: Trump is playing on their fears, and telling them everything they want to hear. Trump, if he's elected, will do what Obama, and his predecessors have done: maintain the status quo.
Except for perhaps Franklin D Roosevelt and Ronald Reagan, there's not been a president who has made a meaningful, transformative impact on the lives of the average person. No one's salary is going go up in a huge way, the country won't be any more or less secure, etc.
The president of the US (and other heads of state, to be honest) are "leg-men" for whatever coalition of interests they favour or are sympathetic to. Obamacare is a boon for the health insurance industry, for example.
Trump's rhetoric, whether he's being sincere or not, is appalling. However, what's even worse is the gullibility of so many people. Trump is using a tactic politicians, potentates, and despots (of all stripes) have used for centuries: find an enemy (real or imagined), gin up people's fears, and lie big.
1 ( +1 / -0 )
Failure to secure funding sources would threaten Japan’s aim of balancing the primary budget - excluding new bond sales and debt servicing - by fiscal 2020 in a bid to curb the heaviest debt burden in the industrial world.
A new one: "funding sources" otherwise known as tax revenue.
Raising taxes is "old hat". It has been done. What would really take a good amount of political will are spending cuts, market liberalization, and tax cuts.
Exempting food from the sales tax hike looks good, but, the reality is that an increase in taxes will inevitably lead to higher food prices. The food industry's costs will go up on things like fuel, supplies, equipment, etc.
There's no government in the G8 that needs more tax revenue. What the Japanese government needs to do is cut spending. Spending cuts aren't easy or popular, but, they don't take money out of working people's pockets, or from the profits of business.
Japan's debt is a symptom of a much bigger problem: a sluggish, over-regulated economy.
Japanese people pay a lot in taxes, health care premiums (which are sky-high), and fees. Raising the consumption tax takes badly needed money out of the economy, and ultimately hurting growth.
If more tax revenue is needed, then make the Japanese economy more open, engage more actively in international trade, cut taxes on median incomes, and provide tax incentives for investment, and entrepreneurship.
Retire "the taxman" and give consumers a break for a change.
2 ( +4 / -2 )
Raising the tax would only hurt the economy, and deliver a meager bump in revenue. Higher VATs don't encourage more consumer spending, especially if taxes on income, property, profits, etc, stay the same, or go up. If a jacked up sales tax is to work, other taxes must come down, especially on stagnant Japanese salaries.
S&P seems to be assuming that the Japanese government doesn't collect enough tax. Japan's debt is the direct result of uncontrolled deficit spending, not a lack of taxation. The focus should be on fixing the economy, not slowing it down with higher tax burdens.
Higher taxes have never brought about prosperity, nor led to lower sovereign debts.
Spending cuts and getting rid of waste would go much further, and more quickly than just imposing higher taxes on a workforce that pays a lot of tax already. The cost of living in Japan is also very high, not mention the cost of doing business.
Japanese people and employers need more revenue, and be allowed to keep most of it. The sales tax increase was an unwise, foolish decision, and shouldn't be repeated.
1 ( +1 / -0 )
deflationary doldrums that it says is stifling growth.
Deflation is more the symptom of Japan's economic problems, not the cause. Incomes have remained pretty stagnant for more than 10 years (maybe longer). Combine that with Japan's high living and business costs, and an interventionist/protectionist government that loves to hike taxes, Japan's economy slows down.
Incomes have to go up and/or taxation on salaries has to come right down. A sound reduction/reform of regulations, and tax cuts for business/investors are also required. There needs to be more money in the economy, in the hands of consumers and business, being invested, and spent.
Stimulus packages, and QE don't lead to more discretionary income, or significantly higher profits for businesses (not in the financial/banking industry). There's very little in Abenomics that will lead to even a modest economic revival.
0 ( +0 / -0 )
The BOJ's stimulus plan was never going to deliver what the economy needed: confident consumers with more disposable income, and more investment in businesses, and entrepreneurial ventures.
What the government needs to do is change its heavy-handed, interventionist approach, and let consumers, investors, and businesses have a freer hand in managing the economy. Abenomics, stimulus packagaes: government show pieces designed to benefit few.
I know I stress this a lot, but, a free market approach is needed in Japan. It may not be the way things are done in Asia, but, clinging to interventionist traditions isn't going to lead to an economic revival.
0 ( +1 / -1 )
, yes im sure you some dude in the internet have better understanding of the economy than the entire Japanese government
Hero77, I'd say most people probably have a better understanding of the economy than the entire Japanese government (or any other government for that matter).
Politician, bureaucrats, high ranking officials live in a totally different world than individuals, or businesses. I can't perpetually borrow more money than I earn without some kind of consequence. My salary is very much tied to my performance and that of my employer.
Japan's sovereign debt is mostly from money borrowed from Japanese citizens, and businesses. The government to pay back the money it owes them, asks its own creditors to it pay more money through taxation. An individual or business couldn't do that to their creditors ("Hey Visa, give me more money so I can pay your back).
I may be "some dude" but, like many "dudes" and "dudettes", I have a fixed income, a budget, and debts to pay. We live and experience the economy in way the likes of PM Abe can't begin to appreciate.
0 ( +0 / -0 )
The best thing for the government to do is hold off on intervening. The Japanese government has shown itself to have poor understanding of economics, and business. To date, its intervention hasn't revived the economy.
5 ( +8 / -3 )
If you eliminate the consumption tax on various things, you are giving the RICH and the upper-middle class, who can easily afford to pay such tax, a tax break.
I don't fxgai.
VATs do more harm to the poor than any other group. Raise consumption taxes, the cost of things like housing, food, energy, transport, clothing, etc go up, making it harder for low-income individuals and families to get by
Better to have low income earners, and everyone else, keep as much of their cash as possible so that it can be invested, used to buy goods and services, saved (for retirement, childcare, education, etc). The government's role in the economy should be one that facilitates growth, not limit or stop growth.
The increase of the consumption tax is incompatible to plans for economic revival. One could argue that it would help Japan reduce its sovereign debt, but, the government continues to spend rather than cut costs. Its poor fiscal management means the debt will continue to spiral.
Taxation is an archaic, and ineffective means of fostering growth. Moreover, in the developed world, working people (median income earners) have long been overburdened by taxes on their income.
If consumption taxes are increased, then a wise move would be to cut taxes on income, and profits to offset it. This way working people have that much more disposable income to spend on discretionary purchases. Businesses would have more money available to hire more people, raise salaries and expand.
0 ( +0 / -0 )
So criticism of the pension scheme is not reliant on hindsight.
You've not supported your argument there, kohakuebisu. I can how, for yourself, criticism of the public pension scheme isn't reliant, but, the government run pension system isn't beyond criticism, and certainly not reform.
A hard, thorough, critical look at the public pension scheme should happen. There should also be provisions for people to opt in as they approach working age, or opt out if they feel the public plan isn't necessary.
Also, most public pension plans don't deliver much in benefits when its time to collect. People would get more from a retirement savings plan (RSP), or some form of investment.
You're also not taking into account that public pension benefits are subjected to taxation. In Canada, they're taxed at source. I don't know if it's the same here, but, even if benefits aren't taxed directly, VATs, property taxes, etc, not to mention basic living costs, take a big chunk of those benefits that go directly back to the government.
You make some good points, kohakuebisu. However, to just dismiss reasoned criticism of the public scheme isn't really the way to go. Japan is faced with serious economic problems, looking at as many options as possible is the best way deal with it.
-1 ( +0 / -1 )
“As incomes improve among working generations, private consumption is expected to pick up through fiscal 2016, but growth would be restricted by rising retirees,” said Kiichi Murashima, economist at Citigroup Global Markets Japan.
1% wage hikes aren't exactly a sign of incomes improving. First, a meager bump in pay, while better than nothing, isn't going make a difference in how people spend their discretionary income. Second. "as incomes improve" tax rates on those incomes rise, seriously limiting the benefits of a pay raise.
Scores of kechi old skins sleeping on their millions, saving fortune for after their deaths... I'm all for helping the 30% of poor elderly but no need to help the 50% that have enough to live well (that is better than working households) and the 20% that concentrate most of riches of the nation.
Fair point, however, the "kechi" had paid "millions" into the system, helping support the retirees before them. Their "millions" were earned through long, hard hours of work, and careful financial planning. Also, their "millions" are sorely needed to pay for their health care needs, housing, support for relatives caring for them, etc.
There should be some reform of the public pension scheme. The government could encourage more investment with tax write offs for those who set up a mutual fund, private retirement savings plans, etc., or allow such people to opt out of the public pension plan.
The underlying problem here is a lack of confidence in the economy, and the government constant moves to squeeze more and more money from a heavily taxed population (considering the high living costs). There's no incentive for frugal retirees to more of their discretionary incomes than they already do.
-1 ( +0 / -1 )
First, there's PM Abe's joke of an economic plan.
Then there's this attempt to fool people by using the word "reinterpret" when clearly the security bills violate the constitution. The government has been brazenly dishonest, giving out spurious statements.
0 ( +0 / -0 )
Japan's government seems like the US and the UK's. Grabbing for more power, contrary to constitutional law. I'd add Canada to that list, but, its constitution is already rigged to give the government power to void rights and freedoms.
0 ( +2 / -2 )
It's not the government that has "anti-consumer policies." It's the private sector, which earns record profits, hoards record amounts of cash, and yet is increasingly unwilling to give back to its workers.
JeffLee, there's some truth to what you say. Corporations are being stingey with their cash, which, could be re-invested, or used to give better pay rises. However, the private sector, by its very nature, very much pro-consumer. Businesses, large and small, want people buying their goods, and services-especially those that are discretionary.
The business establishment in Japan is stogey, conservative, and very old-fashioned much like the government. I won't argue with you on that point. Fair enough, higher paydays would lead to better consumer spending, but, it's the government that is severely limiting consumer spending, not business.
A higher consumption tax means increased costs, which mean profit margins get narrower, that leads to higher prices for the goods and services, both essential and discretionary. The extra cost, unfortunately, is imposed on consumers across the board.
A hike in VATs works best when coupled with cuts in income taxes, and business taxes. The government refuses to take these steps; instead, it expects people to spend more of their stagnant incomes on products whose prices are rising faster than their salaries.
Also, consider, if businesses give back to their workers, the ward offices, and federal government will simply go after the extra income, reducing, if not eliminating, whatever gains made with a pay rise. So, while the business establishment isn't actively helping consumers, it's not kicking them in the teeth with needless tax increases.
From your posts, you seem to lean left, and therefore have an idealized vision of government. Certainly, government can do a lot of good, but, unfortunately, it's riddled with incompetence, dishonesty, cronyism, and corruption (regardless of the political leanings of the governing party).
Again, I don't deny the shortcomings of Japan's business establishment, but, you're giving the government a pass when it should be held to account for its appalling mismanagement, and utter stupidity.
0 ( +0 / -0 )
household spending remains stubbornly weak as the Bank of Japan struggles to push up prices in a bid to end decades of deflation.
Household spending will continue to be weak if the government continues its anti-consumer policies. Without better incomes, and/or reduced income taxes, consumer spending won't deliver much of an impact. QE isn't the way to boost inflation as it doesn't significantly make a huge difference to working people's salaries.
Despite wage rises at big firms and a tighter labor market, convincing people to splash out on consumer goods has been a struggle after Japan raised sales taxes last year to help pay down a huge national debt.
The big firms' pay rises wear meager, at best. Like most governments, the Japanese government, at the federal and city level, will pounce on those extra earnings, negating whatever puny gains the 1% wage hike brings.
The government wants consumers to spend more of their discretionary income on good and services. Yet, it does everything to ensure that consumers can't spend more money.
Worse, the buying power of employees' wages is diminished by the tax rise, which has a knock on effect. Basic, essentially goods and services become more costly, making it impossible for consumers to "splash" out on discretionary purchases.
PM Abe squandered a golden opportunity to turn the economy around. Raising the consumption tax, without income tax cuts to offset it, was stupid, and unsound, grounded in false assumptions. Japan's debt woes weren't from a lack of tax revenue, but, from proliferate, unchecked, reckless spending.
Whoever PM Abe's advisers are, they're understanding of human behaviour, and economics is shockingly poor. Striving for growth then working against it with tax hikes is self-defeating, and a tragic waste of opportunity.
Certainly, some growth, however meager, is better than nothing. However, these numbers may well be an exception, and don't necessarily mean the economy will grow more robustly down the road.
0 ( +1 / -1 )
A higher elasticity rate means a country can expect to reap higher tax revenues and makes more progress in restoring its fiscal health from an expansion of economic growth.
Sounds like a plan, but, the government's policies are anti-growth. Unless the government changes course, it's higher tax revenues will be a short-lived phenomenon, or, at best, be meager as business and consumers tighten their budgets. Worse, there could well be a flight of capital, and wealth, out of the country.
Social welfare spending is more than 30 trillion yen of spending, and growing each year.
That's a good point, fxgai, but, there could still be some efforts made in curbing the actual costs associated with social welfare spending, particularly healthcare spending. It's not as if the 30 trillion yen is going directly into the pockets of individuals.
The administration and bureaucracy of the health care system should be heavily auditted for inefficiencies, waste, and (yes) misuse. Costs will continue to spiral if reform, and better administration don't happen.
Let's consider Japanese people do pay very high premiums which are based on their income, not on their healthcare needs or usage like private insurance. The government is in a tough bind here, to be sure. Cutting coverage or hiking premiums would cause more problems than it would solve.
The government ought to look into giving tax breaks to families, and individuals caring for aged individuals in need of care. The costs involved in an aging society don't just include health insurance. There's also transport, accommodation, specialize care, and time.
While certainly not the biggest outlay, cutting back on superfluous construction projects can bring on huge savings to mitigate the cost of social welfare spending. Pork barrel projects and programmes do add up, and have costs not just in terms of cash, but, also opportunity and time.
The government needs to get on a growth oriented track.That means a more liberalized, and open market; a more fair, and reasonable tax code that allows for individuals, families, and business keep more of their earnings for living/business costs, re-investment, savings, etc.
The one smart thing the government can do is not hike taxes again, better still, cut taxes so as to promote consumption, robust investment, and job growth.
0 ( +0 / -0 )
They pumped an additional $29 Billion into the economy in the first quarter, and this is the result?
Well, jerseyboy, the additional 29bn$, the rest of the cash, didn't go into the economy at large. The money went to select institutions, and businesses. Certainly, if consumers had had access to those funds, the results would like have been different, perhaps even better.
Instead of QE, the government should've used tax cuts, and incentives for consumers, and businesses. More robust investment, and consumer spending are more conducive to economic growth, and inflation, than tax increases.
0 ( +0 / -0 )
People have gotten used to the new tax (much like Canadians did when their government imposed a VAT in 1989). However, retail sales would have been much more robust if the government had left the consumption tax at 5%, and focused on fixing the economy.
PM Abe needs to work on increasing trade, liberalizing the economy, and lowering taxes on income and profits. Consumers won't change their discretionary spending habits much if their incomes are constantly taxed. The same goes for businesses. Though Japan's corporate tax rate is relatively low, taxes on businesses are still very high.
For a government that wants to see higher inflation, it's doing its level best to ensure deflation continues. All the data shows that raising the consumption tax was reckless, and irresponsible given the state of the economy at the time.
The BOJ's efforts won't make much of a difference to the finances of most working people. The economy is still weak, so the pressure remains on consumers to eke out a living on incomes with less, and less buying power.
0 ( +0 / -0 )
But overall growth has remained sluggish.
So true, and, the BOJ and the Japanese government actions will ensure tepid growth continues.
3 ( +3 / -0 )
That conflicts with the stance of Japan’s powerful Ministry of Finance, which has called for raising tax and cutting spending to rein in debt.
Cutting spending, and moreover, wasteful spending is smart. Raising taxes: stupid.
Tax increases would slow the economy down, or, worse, send it into a recession. The argument that taxes have to be raised is fallacious. It assumes Japanese people don't pay enough taxes. Like many citizens of the developed world, people in Japan lose much of their income to taxes.
BOJ Governor Haruhiko Kuroda, a former finance ministry bureaucrat, has repeatedly called on the government to speed up reforms, including through raising the sales tax.
The government would be wise to ignore Kuroda, and focus on fixing the economy. Higher value-added taxes (VATs) only hurt the economy, especially low income earners, and the poor. VATs also work to bring down demand discretionary goods and services.
Unless the government cuts personal incomes taxes, and businesses taxes in proportion to the increase in costs VATs cause, then the consumption tax should stay at 8% (although 5% was perfectly reasonable).
The world economy has gone well beyond the ability of taxation to affect positive change. Kicking working people and business in the teeth isn't the way to revive the economy.
Raising taxes is something governments all the world have done for centuries. The results we see today: a sluggish world economy being crushed by gargantuan debt.
Cut spending, lower income taxes, business taxes, liberalize the Japanese market, and open the economy to more active, free trade, and there will be far more positive results.
A long term step would be to encourage more entrepreneurial activity. Japan has a relatively small number of entrepreneurs because the young are brainwashed into the idea that they must work for a "big company". This is not to say a steady job is a bad thing, but, it's not the only option.
Entrepreneurship brings about innovation, jobs, and ultimately, more taxable income and profits for government in the long term.
1 ( +2 / -1 )
Kuroda must be thinking of the Japan in Dimension X. Anemic growth, while better than nothing, is hardly "expansionary".
The government has done next to nothing to foster growth. The decision to raise the consumption tax was reckless, and poorly timed. Ward offices, and the federal government still impose a large number of taxes on business, individuals and families.
Without better, robust, income growth, and lower taxes, whatever growth Japan experiences will be meager at best.
0 ( +1 / -1 )
Deficit down, unemployment down. Liberal gaijin fury up!
Deficit down, modestly, but debt to GDP still sky high.
Then there's growth.
Household spending, and disposable income.
Too early to be celebrating, or trying to zing people.
By the way, critics of Abenomics aren't all necessarily "liberals".
0 ( +0 / -0 )
The central bank governor, Haruhiko Kuroda, acknowledged that his target of 2% inflation, excluding the impact of an April 2014 increase in the sales tax to 8% from 5%, remains elusive. He said actual inflation is flat at 0% and it might take three years, instead of the two years he originally aimed for, to reach that goal.
Then in 2018, Kuroda will say he needs two more years....
It's appalling how people like Kuroda, and Abe can have such a poor understanding (or perhaps it's disregard) for how inflation actually works.
DEMAND has to go up: pure and simple. People need more disposable income with which to buy discretionary goods and services (or invest). Tax increases won't bring this about.
0 ( +0 / -0 )
Reality is that government in Japan is much smaller that in western countries both in terms of size of the bureaucracy and the per-capita level of government spending, and the tax burden is lower.
Relatively speaking, yes, but, that the tax burden is comparatively lower, doesn't mean it should be raised, or that it's reasonable.
Japan's debt is bigger than it's actual economy. Per-capita, or whatever measure you'd like to use, spending is very high.
Comparatively, perhaps things don't look as bad, but, in absolute terms, it's not great. That Sweden spends more than Japan, isn't helping Japanese consumers increase their wages, or revive the economy.
That shows there is a problem of HOW the money is being spent, not the clueless idea that the problem is that money is being spent.
I won't disagree with you that money isn't being spent well. However, that doesn't mean spending shouldn't be brought under control.
Deficit spending isn't a panacea for all economic woes. Tax cuts would go further in allow people to KEEP more of the money they earn. Cutting taxes on business would give companies more of an incentive to spend, especially if those tax breaks are tied to investment, recruitment, and development.
Tax increases do more to hinder economic growth. One, median income earners are more often than not targetted for tax hikes, reducing their discretionary income significantly. Value-added-taxes are also detrimental to low income families and the poor, so raising them makes no sense. Higher VATs increase costs to businesses, who therefore have to raise prices to maintain profit margins. Higher prices, again, hurt working families, low income earners, and the poor.
As for corporate welfare, welcome to the real world, that is a global issue not a Japanese one.
Again, I agree. I never wrote that corporate welfare doesn't exist elsewhere.
But of course, it is much more fun to ignore the actual issues and causes of economic problems, and instead blame everything on easily disproven fallacies. And also be sure to blame Japanese culture and babble on about needing more risk taking and innovation. As if we need any more Facebooks in the world.
Well, first off, who's blaming Japanese culture? Certainly, I'm not.
The Japanese economy was in a bad state well before PM Abe was even elected. We all know the free market system isn't perfect, and that it gets "gamed" by "the powers that be". However, let's no give this government, or previous ones, a pass.
However, it's no fallacy that the consumption tax hike hurt the economy. It's no fallacy that working people aren't being given the incentive or the means to engage in "a virtuous cycle of consumption". The Japanese economy is over-regulated; that's no fallacy.
These are things the government can change, but, still chooses to continue doing, oblivious, or uncaring of how it negatively impacts most people.
-2 ( +0 / -2 )
"This Japanese administration has been focusing on changing its economy to a growth-based system built on innovation,” said Japanese economic researcher Takeo Hoshi, a senior fellow at Stanford University’s Freeman Spogli Institute for International Studies. “This is probably the best place in the world to look at that.”
An economic researcher should get facts correct. The current Japanese government isn't making much of a move to a growth based system. Abenomics is a roundabout way of maintaining the status quo: corporate welfare, big government, higher taxes, over-regulation, and runaway deficit spending.
Hopefully, this visit will get PM Abe and his government to change course, and start liberalizing the economy, cutting taxes, and openning the Japanese market up more to trade. Encouraging young people to pursue entrepreneurial ventures, investment, and self employment would deliver economic benefits in the long term.
1 ( +1 / -0 )
Japan’s central bank has defied expectations it might expand its monetary stimulus to help get growth back on track, keeping policy unchanged despite data showing factory output fell in March.
Expansion of monetary stimulus won't necessarily boost demand for the products factories produce. Nor will it make skittish investors more confident, or heavily taxed consumers spend more.
Abenomics is more about deficit spending than economic revival. There's nothing in PM Abe's policies that make Japan a more business, and consumer friendly market.
0 ( +0 / -0 )