Consumption tax 10% ahead 16:43 on September 26

After the introduction of the consumption tax at a tax rate of 3% in 1989, more than 30 years have passed, and the tax rate will finally be double digits.

Reaching 10% is probably a break in the history of consumption tax, but some international organizations point out that a 20% consumption tax rate is necessary for financial reconstruction.

On the other hand, there are political parties that advocate freezing and tax cuts among the opposition parties, and it seems that the debate over the consumption tax will never run out.

Tax and consumption tax that are directly linked to the contents of our wallet. What will happen in the future? (Economic Department reporter Hiroaki Tsuboi)

"There is no need to raise the consumption tax for 10 years"

"The Abe administration has no idea to raise the consumption tax any more"
"I don't think it will need to be raised for the next 10 years"

The remarks of Prime Minister Abe on July 3, just before the House of Councilors election.

Prime Minister Abe won the upper house election, complaining that it is absolutely necessary to raise the consumption tax rate to 10% in order to build a social security system for all generations.

On the other hand, this statement that recognized the need for a tax increase over the next 10 years spread the ripples inside and outside.

No further tax increase will be sent off for the time being.
First of all, there may be many people who thought it was safe.

Finances fire car background social security

Increasing the consumption tax rate to 10% aims to secure stable financial resources for social security expenses that continue to expand, and to rebuild the finances.

Of the revenue increase of about 5.70 trillion yen expected from the tax rate increase this time, half will be used to increase the country's revenue and improve the fiscal health.

The background is an increase in social security costs due to the aging of society and a serious shortage of financial resources.

Social security expenses such as pensions, medical care and nursing care are mainly covered by insurance premium income, but in reality, it is not possible to cover insurance premiums alone, and over 30 trillion yen of tax is invested every year. .

As a result, the combined debt between the country and the region is expected to reach 1122 trillion yen at the end of this fiscal year, which is the worst level in developed countries.

Is 10% enough?

Is it possible to raise funds to 10% to cover social security resources and reduce debt?

Professor Mitsumitsu Sato (Hitotsubashi University Graduate School of International and Public Policy), who is a member of the Minister of Finance's advisory body and the fiscal system council, points out that 10% is water for burnt stones.

“The increase in national debt is not due to the recession. Considering that the increase in social security spending due to aging will continue, Japan's finances are not waiting for 10 years. Even if it's not an option to raise the consumption tax further, there's no need to do nothing. ''

The finances will be even tighter

The government has set a goal of fiscal consolidation to make a “basic fiscal balance” in fiscal 2025, which indicates whether the necessary expenses for policies can be covered by tax revenue without relying on debt.

However, the Cabinet Office estimates that a deficit of 2.30 trillion yen will remain in FY2025 even if higher economic growth can be achieved. The deficit in the basic balance of payments is nothing but the future of borrowing, but we cannot expect to achieve the target even after the tax increase.

Furthermore, the “2025 problem” is imminent. The so-called “baby boomers” are all over 75 years old, and the population over 75 is expected to reach approximately 21.8 million.

Social security payments increased by about 20 trillion yen from the previous fiscal year (2018: about 121 trillion yen), rapidly increasing to over 140 trillion yen. In 2040, the aging of society is expected to increase further, reaching approximately 190 trillion yen.

Economic growth alone is not enough to cover these costs, and it is difficult to maintain the current social security system unless we take further measures such as raising taxes and social insurance premiums, or reducing benefits. It has been pointed out.

Is the re-lifting sealed?

On the 20th of this month, the first meeting of a new government meeting to reform the social security system was held.

The main focus of the meeting is whether we can step into a review of the fundamental benefits and burdens for the next summer's reform proposal. However, the consumption tax debate is already sealed.

If the argument to raise the tax rate of 10% further comes to the surface, it is expected that a large rebound will be generated.

In fact, even among executives of the Ministry of Finance aiming for fiscal reconstruction, “Discussion about benefits and burdens will surely be made, but we cannot talk about burdens from the beginning” or “We just raised the tax rate and raised the consumption tax further It is absolutely impossible to discuss "."

However, we cannot avoid the debate about how to cover the ever-increasing social security costs.

“The country should honestly show the public a variety of menus, such as what level of social security they can provide, how much burden is needed to do so, and whether the consumption tax is 10% or 15%. It's not necessarily limited to consumption tax, but the message "Please don't worry if you can grow economically" is not good because no one believes it. "(Professor Sato)

How to face the era of burden distribution

Japan is becoming an era of “distribution of burden” after the “distribution of fruits of growth” during the period of high economic growth and the long economic downturn after the bubble burst.

How should we face each other in the future?

Prof. Sato said, “From a consumer's perspective, it is better not to raise the consumption tax, and social security should have more benefits. However, what is important is that the benefits and burden of social security are really balanced now. It is important to have this perspective whether this system is sustainable or whether it can be left for my children and grandchildren. "

The destination of the consumption tax may vary depending on what we ask for social security and how much we can afford the burden.

I think it is necessary for each and every person to think seriously about the future of Japan, including how the consumption tax should be.

Economic Department reporter
Hiroaki Tsuboi

After joining Hiroshima Bureau in 2013, now in charge of the Ministry of Finance