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Business slowdown must be avoided in hiking sales tax to 10% next year

The Yomiuri ShimbunA third consumption tax hike is coming. How can a business slowdown in the wake of a tax increase be averted? A multilateral private-public approach is essential to prop up consumption.

In preparation for the sales tax hike to 10 percent, scheduled for October 2019, the government has launched studies on measures to alleviate any economic impacts.

There was a surge in demand before the tax rate was raised to 8 percent in April 2014, and then a huge reactionary fall in demand afterward. This resulted in a prolonged low consumer spending and became a factor that made it difficult to achieve an early exit from deflation.

To cover ever-swelling social security costs due to the aging of the population, a consideration on a further rate increase will become inevitable even after it is raised to 10 percent.

Reflecting on previous tax increases, it is imperative to make arrangements for a smooth implementation of the planned tax rate hike.

As the planned tax hike will amount to an almost ¥5 trillion tax burden on the people, there are opinions within the government that a certain degree of fiscal stimulus should be taken.

From the viewpoint of promoting fiscal reconstruction, fiscal spending should be prevented from becoming excessive. At the same time, it is indispensable to assess cost-effectiveness and scrutinize spendings in light of whether they could foster economic growth.

In Europe, where tax systems like Japan’s for consumption tax have a long history, companies devise ways to prevent tax hikes from being directly reflected in retail prices. In the case of Japan, there have been big price increases when the consumption tax was raised in the past. Behind this could be a government policy of calling for the increased portion of the sales tax to be strictly passed on to retail prices.

Realize mild price rise

One idea is to leave it to individual business operators to decide whether to pass on the increased portion to retail prices.

Naturally, retailers should not leave wholesalers to bear the increased portion of the consumption tax. On top of that, it is advisable to permit a sales campaign to offset the consumption tax hike and prevent an immediate increase in retail prices.

Adopting reduced tax rates for specific consumer goods could also be expected to alleviate the impact of the sales tax increase.

When it raises the tax rate to 10 percent, the government will adopt reduced tax rates for the first time — for general food products excluding alcohols and meals that are eaten out, and for newspapers published at least twice a week and with regular subscribers.

Meals consumed in eating areas of supermarkets and other stores are categorized as eaten-out if the eating utensils are returned. But they are subject to the reduced tax rate if they are served in throwaway containers. There are not a few such minute rules. Retail stores are required to modify or replace their cash registers.

The government must expedite various efforts toward the smooth implementation of the reduced tax rates, including making it publicly known that there are public subsidies for register replacements.

Preparing an economic environment that can withstand tax increases is the government’s heavy responsibility.

A mild price increase must be realized by breaking away early from deflation, which causes consumption to slump. The government will be put to the test as to whether it can put forth concrete measures in a new growth strategy to be compiled in June at the earliest.

(From The Yomiuri Shimbun, May 9, 2018)Speech



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