Japan Press Weekly

Tweet

2012 January 25 - 31 [POLITICS]

Consumption tax hike will harm economy

Akahata editorial (excerpts)

The International Monetary Fund (IMF) is again meddling in Japan’s tax affairs.

At a press conference held on January 24, Philip Gerson, Deputy Director of the IMF’s Fiscal Affairs Department said, “We would lean towards being more aggressive in increasing the rate of the consumption tax ……from 5 percent over time to 15 percent.”

It is none of their business.

One of the IMF’s deputy managing directors is former Vice Finance Minister for International Affairs. This implies that the international financial body’s policies reflect the intentions of the Japanese ministry and the government led by the Democratic Party of Japan.

Prime Minister Noda Yoshihiko is pressing the general public to accept a consumption tax hike as the only measure to avoid a sovereign debt crisis similar to that facing some European countries.

Several European nations are currently in a vicious circle where austerity measures are affecting their economies and reducing tax revenues, leading to an increase in budget deficits.

IMF chief economist Olivier Blanchard said that rather than taking urgent measures, a credible but realistic fiscal consolidation plan will get the recovery back on track.

Due to a long-term decline in public income, Japan’s domestic consumption, which is mainly driven by household expenditure, is extremely weak at present. The 5 % consumption tax increase will take 13 trillion yen from the general public and inflict devastating damage on household budgets and further decrease domestic demand. This will cause a negative spiral downward with the economy sinking into a double-dip recession and further increasing the budget deficit.

The Cabinet Office itself admits the differences between Japan and Europe in its report released last December. It states that it is less likely that a financial crisis will come to the surface in this country because Japan has a current-account surplus, there is no rapid outflow of foreign capital, and the number of foreign investors owning Japanese government bonds is minimal.

The report also points out that the European experience shows clearly that a weakened real economy damaged by austerity programs and tax increases will prevent tax revenues from increasing, and this will hamper renewed confidence in government bonds.

Fiscal reconstruction must be promoted by reducing wasteful budget, including huge military expenditures, calling on the wealthy and large corporations to shoulder a fair share, and improving the social welfare system.