Japan Press Weekly

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2014 June 4 - 10 [ECONOMY]

Personal consumption drops after sales tax is raised to 8%

The government and major media have been trumpeting that the impact of the tax hike stayed “within the assumption” or was “not a big deal” as feared after the consumption tax rate was raised to 8% in April, but personal consumption is actually declining sharply.

The Ministry of Internal Affairs recently published data showing that the higher tax had more serious consequences than when the consumption tax came on the scene in April 1989 with a rate of 3% and when the rate increased to 5% in April 1997.

According to the data, consumer spending at the time of the initial introduction fell by 1.2% from the average spending in the year before and a 1.0% drop was experienced at the time of the rate increase. In April this year, a record decrease of 4.5% occurred. The drop in personal consumption more than tripled compared to after the tax introduction and the tax rate increase in the past, indicating serious consequences on household expenditure.

In fact, the statistics on the value of commercial sales released by the Ministry of Economy decreased 3.9 % on a year-on-year basis in April. In particular, the value of retail sales fell by 4.4%. New housing starts dipped 3.3% and new car sales was down 5.5%.

In sharp contrast, prices went up by 3.2%, the largest increase since the collapse of “bubble economy” in 1991.

The average wage of workers also decreased for 25 consecutive months. The average monthly income of working families in April fell as much as 7.1% from a year earlier.

The general public is taking belt-tightening efforts with their household budgets, holding off on the purchase of previously necessary goods and services.

What the government needs to do for economic recovery is to help to stimulate the household economy by increasing wages and improving social security programs, not by implementing another increase in the consumption tax rate.