The Japanese government finally went ahead with its plans to increase the standard sales tax rate. The Japanese authorities have been trailing the move for years now, with the potential last minute danger to the introduction of the measure, or the potential last minute savior of the Japanese economy (depending on your perspective) being the likely chilling effect of a sales tax hike on consumer confidence, and with the knock-on effect that is expected to have on spending.
Given the relative weakness of the Japanese economy over the last few years, with its concerns over the impact of an aging population on government receipts, this is a valid worry. However, the increase has now entered into force (following two previous delays), so let the dice fall where they may, economically speaking.
However, in order to mitigate the impact of the rate rise … Read More »
You know the world’s gone a bit topsy-turvy when the Japanese Government is determined to go ahead with a consumption tax increase and the International Monetary Fund is urging it not to be so gung-ho.
Normally it’s the other way around; it’s the IMF, along with other rich nation quangos like the OECD, telling Japan, the world’s most-indebted country, to hike consumption tax or face fiscal and economic crisis, while Japan itself demurs, petrified at the thought of another recession. But following the recent snap election in Japan, which gave Prime Minister Shinzo Abe a fresh mandate, it is Japan itself that seems prepared to bite the bullet and hike consumption tax in two years’ time, with the IMF worrying about the consequences of such a move on the economy, according to its most recent country report for Japan.
In a sense, the … Read More »
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 – … Read More »
India’s economy has yet to peak, but most observers would agree that in the main, the country will be looking up at the summit, rather than down at the base, in the coming decades. One really does wonder whether the opposite is true of Japan, which perhaps reached its economic peak over 20 years ago and is now staring up at a debt mountain, wondering when the summit will appear. After some pretty disastrous economic data this year, Prime Minister Shinzo Abe, perhaps the most dynamic Japanese leader in recent history for his economic polices at least, got the frights and decided to cancel a consumption tax rise from five percent to eight percent, not due to take effect until next October; the first stage of the phased increase, from three percent to five percent, which took place last April, … Read More »
Maybe it’s time for negotiating teams attempting to expand the Trans-Pacific Partnership free trade agreement to say “sayonara” to the Japanese delegation, with Tokyo seemingly refusing to budge from its entrenched position on protections for its agricultural and automotive sectors. Of all the world’s major economies, Japan remains something of an enigma. It achieved phenomenal growth in the decades succeeding World War Two, but it remains distrustful of foreign participation in its economy, and barriers to entry to Japan’s market for foreign investors are still high, despite free trade being the global norm rather than the exception these days. Indeed, foreign direct investment inflows as a percentage of the Japanese economy stand at a meager 4 percent, while the percentages for other advanced economies are in double-digits. Even North Korea manages an FDI-to-GDP ratio of 12.5 percent. As we know … Read More »
We are seeing a series of improbable developments in Japan, as previously unthinkable changes seem to be swallowed wholesale by an economy which was thought to be on terminal life-support. There now seems to be wide acceptance that it will be possible to make further cuts in corporate tax rates while continuing to beef up sales taxes. Even the IMF agrees that this is the correct strategy, while of course continuing to insist on the need for measures to address the country’s indebtedness: 240 percent of GDP and rising. Due to the fact that a very high proportion of the debt is held by domestic savers, who have historically been prepared to accept low interest rates, the average rate paid by the Government is a mere 1 percent. But the budget deficit this year is likely to be 11 percent … Read More »
In a masterpiece of diplomacy, China’s premier said last week that it was “open-minded” about the TPP (Trans-Pacific Partnership), which when you deconstruct it probably means that he is happy for Japan to wreck the chances of a successful TPP by refusing to negotiate on its rice tariffs (778 percent, as I recall). There is a double irony in this, given that Shinzo Abe is in reality quite willing to reduce the tariffs, but doesn’t need to play such a valuable card given that the US Congress has already ensured that there can be no further US trade treaties by refusing to allow the Trade Promotion Authority to be reconstituted, and that China on the other hand has been a willing player in the World Trade Organization. What actually puzzles me most is the question of why Japan was ever … Read More »
As an ardent free-trader, it gives me no pleasure at all to have been right over the extension of the Trans-Pacific Partnership trade deal to include Japan. What I can’t understand is why Japan agreed to put everything on the table, and then just a few months later refuses to negotiate over its agricultural tariffs, including the crazy 777 percent levy on imported rice. Well, I do understand that in apparently changing his mind Shinzo Abe is making a carefully orchestrated domestic gesture, probably because he thinks that the American administration will be unable to get a TPP treaty through Congress without a TPA (Trade Promotion Authority), and there is no point in spending his precious, and limited, political capital and getting nothing in return. In fact, Abe has already gone a long way towards dismantling the agricultural regime that … Read More »
Despite occasional mis-steps, such as over solar panels, and the little “misunderstanding” between the US and Europe over phone bugging, you’ve got to hand it to the EU on the free trade front. A Commission Vice-President weighed in this week in support of the TTIP (Transatlantic Trade and Investment Partnership), and talks continued both on an investment agreement with China, and a free trade agreement with Japan. Full marks for trying, but one has to be sceptical about the chances for all three of these deals to come to fruition. Of the three, perhaps the most likely to work out is the China investment deal: it’s a fact that current levels of investment between the two parties are extremely feeble, although the figures given by the Commission may underestimate triangular flows, for instance through Hong Kong into China and via … Read More »