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2014年1月12日 (日)

4月の消費増税 景気の腰折れ回避に万全期せ

The Yomiuri Shimbun January 10, 2014
Take firm measures to avoid severe downturn after consumption tax hike
4月の消費増税 景気の腰折れ回避に万全期せ(1月10日付・読売社説)


The consumption tax is set to be raised to 8 percent from the current 5 percent, effective April 1.

The government must make every possible effort to make the tax hike the first step toward achieving fiscal stability, while working with the private sector to prevent the business recovery from losing momentum further down the road.

As a result of the Abenomics economic policy mix of Prime Minister Shinzo Abe’s administration, there have been clearer signs that business activities have embarked on a recovery path. Thanks to a rush in demand ahead of the tax increase, sales in such areas as durable goods have been doing well.

The challenge of defeating deflation, however, is only half over, as the national economy has yet to be put on a sustainable growth track led by the private sector.

The possibility cannot be ruled out that consumer spending will stagnate in the wake of the upcoming tax hike, giving rise to fears that the economy could rapidly plunge into a severe downturn.

It is only natural for the prime minister to have stressed that “should the economy lose the power to grow, everything could go wrong.”

Burden on households

With a view to mitigating the negative impacts of the tax hike, the government is set to submit to an ordinary Diet session, to be convened late this month, a ¥5.5 trillion supplementary budget for fiscal 2013, as well as an initial state budget for fiscal 2014, of which the general account expenditures will run up to ¥95.9 trillion, an all-time high.

The main pillars of both budgets will be disbursements for public works projects to stimulate business activities, but there has been a conspicuous number of cases in which no tender bids have been concluded, due to such reasons as labor shortages at construction sites and sharp rises in the cost of construction materials.

Under the circumstances, the government must make both budgets become law as early as possible to implement them smoothly, giving priority to public works projects that are particularly necessary and will be highly effective in stimulating the economy.

The government plans to provide businesses with generous measures, including the abolition in late March, a month earlier than scheduled, of special corporate tax levies to help resuscitate areas hit by the March 2011 earthquake and tsunami. It will also introduce tax code revisions including tax cuts for corporate capital investment.

What is worrisome is that the government can hardly be said to have paid adequate attention to household budgets.

After the tax hike takes effect, the burden on households will increase by more than ¥6 trillion a year, according to a Cabinet Office estimate. There are fears that the higher tax will damper consumers’ impetus to spend, possibly throwing cold water over prospects for a business pickup.

With raw material prices soaring and a progressively weakening yen, markups have been continuing in one area after another, such as electricity bills and foodstuffs. If the consumption tax hike is accompanied by a vicious circle of price increases mainly due to rising costs, consumer sentiment may be dealt an even heavier blow.

The government is urged to materialize a virtuous economic circle in which businesses that are achieving improved profitability initiate wage hikes, which will lead to expanded consumer spending on the strength of higher household income, which in turn will further increase corporate profits.

The prime minister has been calling for businesses to raise wages on such occasions as meetings since late late year between the government and representatives from large employers and trade unions, including the Japan Business Federation (Keidanren) and the Japanese Trade Union Confederation (Rengo).

In his New Year’s press conference, Keidanren Chairman Hiromasa Yonekura said the nation’s most powerful business lobby has been asking member companies to raise salaries for their employees.

Yasuchika Hasegawa, chairman of the Japan Association of Corporate Executives (Keizai Doyukai), another major employers’ organization, has said, “The time is ripe for businesses to consider raising wages when a situation emerges in which prices are on the rise.”

Annual spring wage negotiations between labor and management will kick off late this month. It is an encouraging sign that business circles are showing an increasing appreciation of the need for wage hikes.

But no similar awareness has yet permeated small and midsize businesses that still have not seen the benefits of the business recovery. Expanding pay increases to include small and midsize companies in addition to big businesses is a part of the challenge ahead.

Smooth price shift vital

As Japan seeks to put the national economy on a steady path of growth, while at the same time dealing with the coming impact of the planned consumption tax hike, the management capability of individual firms will be tested as they are forced to make corporate decisions.

Enabling businesses to pass on incremental costs that will be incurred with the April tax increase will be indispensable to a smooth transition in prices.

In 1997, when the sales tax rate was lifted from 3 percent to 5 percent, the pleas of micro enterprises and small and midsize businesses to raise prices for their big business customers fell on deaf ears, leaving the smaller firms with no alternative but to hold prices steady.

Last fall saw the government enforce a law on special measures to ensure a smooth and appropriate price pass-through, banning big enterprises from leveraging their positions of power to reject price shifts.

However, it is difficult to discover this sort of irregularity in actual commercial transactions.

We can expect suppliers to be hesitant to provide information to the government, for fear of being suspended from transactions by their customers, even if the suppliers have had their requests for price shifts rejected.

We urge the government to make it known to all concerned that this type of retaliatory action is banned under the law on special measures and to encourage all affected small and midsize companies to report these illegal acts.

Abe is expected to decide, possibly before the end of the year, on whether to further increase the sales tax to 10 percent in October 2015 as currently planned.

Abe must choose prudently after a close examination of the impacts of the April tax increase.

Reduced rate system a priority

If the rate is to be raised to 10 percent, a reduced tax rate system must be introduced simultaneously to keep taxes down on daily necessities.

The government plans to provide cash benefits to low-income earners as part of economic measures to accompany the upcoming jump to 8 percent.

But the effect of such a temporary provision of benefits is limited.

The adoption of a reduced rate system would be more effective because its benefits will be permanently extended to everyone, including low-income consumers.

In their tax system reform guidelines compiled late last year, the Liberal Democratic Party and its coalition partner New Komeito did not propose a clear date for adoption of the reduced tax rate system.

They must set its introduction to coincide with the introduction of the 10 percent tax rate, and they must also accelerate work on the design of the system, including determination of the reduced tax rates and the items to which these rates will apply.

(From The Yomiuri Shimbun, Jan. 10, 2014)
(2014年1月10日01時23分  読売新聞)


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