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2014年10月13日 (月)

「消費税10%」 やはり軽減税率が不可欠だ

The Yomiuri Shimbun
Lower rate for some items necessary if consumption tax rate hiked to 10%
「消費税10%」 やはり軽減税率が不可欠だ


Will the planned hike in the consumption tax rate heap further pressure on the stuttering economy?

The government and ruling parties have stepped up discussions over whether the consumption tax rate should be increased from the current 8 percent to 10 percent as scheduled in October 2015.

While fiscal reconstruction is not an issue that can continually be kicked down the road and dealt with later, the sluggish consumption that has persisted since the tax rate was jacked up from 5 percent in April must not be taken lightly.

If the consumption tax rate is to be lifted to 10 percent, we think the government should introduce a reduced rate for daily necessities such as some food items, to minimize the burden that will be placed on household budgets.

Tough decision looming

Prime Minister Shinzo Abe plans to decide by the end of the year whether to go ahead with the planned tax hike. He will make this decision after confirming important economic indicators, such as the nation’s gross domestic product for the July-September quarter.

If the tax increase is put off, the government’s efforts to lock in revenue sources for Japan’s snowballing social welfare costs will become even more difficult. The likelihood of attaining the government’s goal of a primary budget surplus by the end of fiscal 2020 also will fade.

That said, however, if the higher consumption tax rate derails the economic recovery and sinks efforts to break out of deflation, everything will be lost.

Abe has said, “I will make a decision that will be helpful to the people’s lives.” The prime minister faces a very difficult choice, one in which he must give consideration to the overall picture of the economic recovery and the state of the nation’s finances.

Special attention should be given to the direction of consumption trends, which will be significantly affected if the tax rate is hiked to 10 percent.

The Family Income and Expenditure Survey, a key monthly gauge compiled by the government, revealed that average consumption expenditures by regular households dropped year-on-year for five consecutive months from April, when the tax rate was increased.

While unseasonal weather has played a part, sales at summer bonus time were sluggish in spite of aggressive campaigns. Spending on consumer durables such as air conditioners has plunged. Consumption of travel and other services, which saw barely a bump in last-minute demand before the tax rate was ratcheted up, remains tepid.

The inevitable fall in response to the tax increase is one reason for this. However, another major cause of these prolonged consumption doldrums is that wage increases have not kept up with rising prices, some of which have jumped by more than the three percentage point margin of the higher tax rate.

Prices of imported grains and other natural resources have climbed due to the yen’s weakness. Moves to raise prices of food and other items are spreading. There are concerns that more consumers will tighten their purse strings as they take “defensive measures” to protect their daily lifestyles.

When the consumption tax rate was hiked to 8 percent, the government unveiled a ¥5.5 trillion economic stimulus package to cushion the blow. The package centered on public works projects, while measures designed to aid consumers were limited. A special cash benefit of ¥10,000 to ¥15,000 paid to low-income earners was intended to help blunt the impact on family budgets, but was too small to have any tangible effect.

Based on lessons drawn from the drop in consumption, the government should consider what effective steps it can take to prevent a “consumer recession.”

Winnowing eligible items

Unlike a single-serving lump-sum payment, lower tax rates for essential commodities can have a long-lasting effect in curbing tax burdens. Every time a consumer purchases an item covered by the reduced-tax-rate system, he or she will actually feel the benefit, so the system is also desirable from the standpoint of keeping consumer confidence from being chilled.

The Liberal Democratic Party and its ruling coalition partner Komeito embarked on full-fledged debates on the advisability of introducing reduced tax rates in a consultative meeting of the two parties on Wednesday.

Although the ruling parties, in adopting a tax system reform outline toward the end of 2013, did refer explicitly to a policy of introducing a reduced-tax-rate system, it is worrisome that a considerable gap remains between the LDP and Komeito regarding their eagerness for realizing lower rates.

Tetsuo Saito, chairman of Komeito’s Tax Research Council, has come out actively in favor of lower rates, saying, “We are determined to address the task of introducing a reduced-tax-rate system with an unflagging resolve.”

In contrast, his LDP counterpart, Takeshi Noda, chairman of the party’s Research Commission on the Tax System, is still cautious. Noda has only said, “We haven’t finalized the details [on the reduced rate system] yet.”

Groups that support the LDP, such as organizations of small and midsize businesses, have opposed the idea of reduced tax rates, mainly on the grounds that it would raise their administrative costs.

If different tax rates are applied to different categories of items, more time and effort will certainly be needed in keeping accounts and following tax payment procedures.

It should be noted, however, that most European nations have introduced reduced rates into their value added taxes (VATs), the European version of Japan’s consumption tax.

By carefully studying overseas precedents of reduced consumption rates, including VATs, discussions must be deepened about what measures should be adopted to minimize increases in related administrative work for private-sector businesses.

A lower-rate system applied to all food and beverages would translate to an annual loss of as much as ¥660 billion in consumption tax revenue for every one percentage point cut in the tax rate. How to narrow the scope of items eligible for lower rates is a major challenge.

Komeito has been working on plans to rein in tax revenue declines by limiting the items to be covered by a reduced rate system to grains and fresh produce. The ruling parties’ deliberations must swiftly address the specifics of how to put a lower tax rate system into practice.

Newspapers deserve lower rate

Food, newspapers and books are subject to lower tax rates in the majority of nations in Europe and elsewhere that apply a lower tax rate on some items.

In Japan, more than 90 percent of newspapers are home-delivered, and many households receive a newspaper almost every day. This plays a major role in supporting democracy and the culture of the printed word in Japan.

Books also have helped to share a wide spectrum of knowledge.

Newspapers and books are not merely consumer products. They can be considered an essential public good for maintaining the affluent lifestyle of the people.

We think Japan should emulate the example set by other nations and adopt a lower tax rate for newspapers and books.

(From The Yomiuri Shimbun, Oct. 12, 2014)Speech


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