Crazy agreement among the three parties: Japan’s economy will go into a deep recession! (Nikkan Gendai – June 16, 2012)

Masatoshi Takeshia

* Posted by Mr.Takeshita in his blog dated June 17, 2012

English translation of an excerpt of “Hibi Tantan” Document blog June 16, 2012

Crazy agreement among the three parties: Japan’s economy will go into a deep recession!  (Nikkan Gendai – June 16, 2012)

Extra ￥300,000 of Burden on Ordinary Households despite No Raise in Pay

The “agreement among three parties” of the Democratic Party of Japan, the Liberal Democratic Party and Komeito has added a final touch to the passage of a bill on consumer tax increase.

The force of numbers the three parties boast of can brush aside the 100 insurgents of the Ozawa group.  However, a 10% increase in consumption tax will detrimentally affect the household economy and SMEs.  It will surely worsen the Japan’s economy.

We don’t know exactly why, but major mass media will never report possible effects of the 10% increase.  It will wreck the life of salaried workers.  Even now the households with no savings account for 28.6% of all households.  With a rise in consumption tax from 5% to 10%, no doubt more and more households will fall into “the red.”

According to estimates by Dai-ichi Seimei Life Research Institute, in case of a standard household with annual income of 5 – 5.5 million yen, an additional burden will be ￥119,300.  And an additional burden of ￥137,900 for that with annual income of 6.5 – 7 million yen and ￥154,400 for that with annual income of 7.5 – 8 million yen, respectively.  As much as ￥20,000 or ￥30,000 per year will be lost for consumption tax alone.

SMEs also directly hit.

Consumption tax is paid at stores by consumers, but it is actually paid to tax offices by small-sized stores and companies.  However, there are many SMEs which cannot afford to pay tax though they are willing to do so.  “The amount in arrear of consumption tax” for FY2010 is approximately 340 billion yen, which accounts for half of arrear of the whole national tax.

With a 10% of consumption tax, the amount in arrear will surely increase.  As annual 14% of tax rates on arrear is imposed on delinquents, it is apparent that companies going bankrupt will drastically increase.

The number of companies which have benefitted from relaxed conditions on loan return to banks due to the “Act concerning Temporary Measures to Facilitate Financing for SMEs, etc.” is approximately 2,280,000 cases, and approximately 400,000 enterprises has survived longer due to the relaxed conditions.  With the introduction of a 10% consumption tax, one-third or half of the companies, that is, approximately 100,000 to 200,000 companies will threaten to face a crisis of bankruptcy.  (A researcher from a private think tank)

Ms. Hiroko Ogiwara, economy journalist, says.

“For these several years, salaried workers have gotten no rise in pay.  On the other hand, hikes in electric rate and health insurance expenses as well as a tax increase for restoration will be burdened on salaried workers who barely survive.  Additionally, they are thinking of a two-fold tax increase, which is absolutely crazy.  Life of salaried workers will collapse.  The economy will be worse and tax revenues will decrease.  Why did the three parties agree on a consumption tax increase?  They must be crazy!”  

When the consumption tax was raised from 3% to 5% in 1997, we saw a rapid economic downturn and a rapid decline in tax revenues.  Now many people know about the fact.  I wonder what Prime Minister DOJO is thinking about.  At this rate, people’s lives will get terrifying.

Additional burden on households by consumption tax increase

[Annual income (unit: ten thousand yen)] [10% consumption tax]

450 – 500 ￥108,990

500 – 550 ￥119,300

550 – 600 ￥121,900

600 – 650 ￥125,700

650 – 700 ￥137,900

700 – 750 ￥125,200

750 – 800 ￥154,400

800 – 900 ￥149,000

Estimates by Dai-ichi Life Research Institute