Japanese Hesitation Over Consumption Tax Hike Condemned
It is hard to think of any country in recent history which has had such a singular focus on one tax than Japan has had with its consumption tax. The reason for this is that, as many inside Japan, and economists and analysts outside it, have come to the conclusion, a consumption tax hike is the only thing likely to rescue Japan from future fiscal oblivion. And there are some compelling reasons for increasing the tax. One of them is that, according to the International Monetary Fund, in dollar terms each percentage point increase in consumption tax generates almost USD20bn in revenue. That’s some chunk of change for a relatively minor increase in tax, and would obviously go some way towards budget deficit alleviation and public debt reduction. And at eight percent, the tax is lower than equivalent levies – VATs, GSTs and the like – in most other countries, so there is some scope for an increase.
However, while consumers in other countries, particularly in Europe, take consumption taxes of 20 percent or more for granted now, such a prospect would send the Japanese fleeing from the country’s shopping malls en masse. But this isn’t just a highly sensitive economic issue. It is also political poison for most who touch it. Which, might have figured prominently in Prime Minister Shinzo Abe’s thinking recently when he postponed the next scheduled rise to 10 percent. Predictably, the international ratings agencies were quick to condemn the decision as credit negative. But the near-constant uncertainty about the tax can’t be helping the situation either. Indeed, it would be more praiseworthy if Abe was prepared to jump off the fence, put his career on the line and decide once and for all about the consumption tax. Indecisiveness is rarely the precursor to successful outcomes.
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