Welfare costs force Abe’s hand . . .
The government of Japan raised consumption taxes from 8% to 10% on Tuesday on all tradable goods, except for food “deemed necessary for daily life.” What exactly qualifies as “necessary” is a little hard to figure out. The different tax rates have caused confusion for sellers and consumers alike. Regardless, the increase was long overdue and twice delayed. Prime Minister Shinzo Abe has not found an alternative for covering increasing welfare costs in an aging society, especially social security costs, which have ballooned into a US$315-billion annual bill.
An offshoot of Abenomics . . .
The Abe Government previously raised the consumption tax from 5% to 8% in 2014. And a planned second increase from 8% to 10% was supposed to happen in 2017. But Abe postponed it twice due to a beleaguered economy and not wanting to risk another recession similar to the one that followed the 2014 tax hike. The tax policies are part of ‘Abenomics,’ Abe’s signature economic policies around monetary easing, fiscal stimulus, and structural reforms aimed at making Japan more competitive. Abenomics has yet to find easy answers for an economy that has barely grown more than 1% per year on average in the last 20 years.
Big strokes, small gains . . .
Abe has managed so far to keep the boat afloat and his government is planning to use the US$58 billion raised from consumption taxes for retirement funds and a national pre-school program. But critics have pointed out the paradox of raising taxes when the government is actually trying to boost consumption and investment in an economy that is at a near standstill. All this comes at a time when the Canadian government is trying to boost trade ties with Japan as part of the Comprehensive and Progressive Trans-Pacific Partnership.
- Japan Today: Japan’s consumption tax raised to 10% amid swelling welfare costs
- Nikkei Asian Review: What is missing from Japan’s consumption tax debate
- BBC News: Japan delivers long-delayed consumption tax hike