Japan Press Weekly

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2012 July 25 - 31 [ECONOMY]

Consumption tax hike will damage economy: private think tanks

A consumption tax hike will damage the Japanese economy, 4 private-sector think tanks independently assert.

The Upper House is debating the consumption tax hike bill which is supported by the Democratic, Liberal Democratic and Komei parties. The bill will raise the tax rate from 5 % to 8 % in April 2014 and to 10% in October 2015.

The Japan Research Institute wrote in its latest report that the tax hike will reduce real gross domestic product by 0.9 percentage points in fiscal year 2014.

The NLI Research Institute estimates that if the tax rate is raised to 8 % in April 2014, real GDP growth rate in that year will decrease by 2.1 percentage points. The adverse effect will remain for a long time even after that: the growth rate will decline by 1.5 percentage points in FY 2015 and 1.9 in FY 2016.

Mitsubishi UFJ Research and Consulting announced that the rise in the tax rate from 5 % to 8 % will decrease real GDP growth rate in FY 2014 by 0.5 percentage points.

According to the research findings of the Mizuho Research Institute, growth in consumer spending will increase by 0.79 percentage points in FY 2013 due to a possible last-minute rise in demand before the tax hike. However, it will decrease by 1.87 in FY 2014, 1.87 in FY 2015 and 2.36 in FY 2016.

The institute also estimates the ratio of consumption tax paid compared with income earned. With the tax rate is 10 %, while households earning less than 3 million yen a year will pay 178,454 yen for the consumption tax accounting for 7.6 % of their income, households with more than 10 million yen income will pay 469,649 yen for the consumption tax and the ratio to their income will be 3.3 %. The gap of the ratio between the former and the latter is 4.3 percentage points, double from 2.1 points under the present tax rate of 5 %.