What happened?

Consumption tax reduction September 14, 14:03

"Shouldn't the tax be reduced even if the deadline is set?" "We must consider that it is a source of funding for social security expenses."

While the economy is rapidly declining due to the spread of the new coronavirus, there are various opinions about the consumption tax in Japan.

On the other hand, overseas, some countries such as Germany and the United Kingdom have decided to reduce the consumption tax one after another.

Are these countries having the effect of rebuilding the economy?

What are the points of discussion in Japan?

(London Bureau Reporter Teruyuki Kurihara / Asia Directorate General Reporter Keita Kage)

In Germany with tax cuts for a limited time

In Europe, where the economy was severely hit by the new coronavirus, many countries are reducing the value-added tax, which is the consumption tax of Japan.

Germany, which has the largest economy in Europe, started implementation on July 1.

The tax rate will be increased from the usual 19% to 16% with a limited measure of six months until December 31st.

For food products, which have the same reduced tax rate as in Japan, the tax rate has increased from 7% to 5%.

High-priced products have attracted attention due to tax cuts.

On the first day of the tax cut, the basement of a bicycle shop in the capital Berlin was flooded with ordered bicycles.

This store sells luxury bicycles that cost more than 1,000 euros (125,000 yen in Japanese yen).

A 3% reduction in the tax rate will reduce the burden on consumers by at least a few thousand yen.

For this reason, more and more customers are willing to place an order in advance and wait for the tax cut to be implemented before paying.

The number of automobiles sold, which had been negative by double digits compared to the same month of the previous year until June, recovered to minus 5.4% in July.

The "Consumer Confidence Index," which measures consumer motivation through questionnaires to consumers, improved significantly in the July survey.

It was analyzed that expectations for tax cuts were strong, and expectations for the effect to spread to the entire economy immediately increased.

What is the effect of boosting the economy?

However, the indicators after that are not good.

July retail sales announced on September 2 were, contrary to expectations, down 0.9% month-on-month.

Although there was a move to buy high-priced goods due to the tax cut, it has not been able to boost overall consumption.

Furthermore, in August, consumer sentiment deteriorated again due to concerns about the re-spread of infection.

Car sales also fell sharply.

The new corona has had a tremendous impact on economic activity, and the situation surrounding the re-spread of infection has a great impact on the economy and consumer sentiment.

For this reason, it is not easy to estimate the effect of VAT reduction alone.

Rolf Bürkl, a consumer researcher at GfK, a major German research firm, said that tax cuts would be effective, but "the final decision should be made until the Christmas season, when shopping is active."

He also points out that there is a risk that consumption will cool down as a reaction to the end of the tax cut period, and that it is essential to improve the employment environment at the same time as the tax cut in order to activate consumption in earnest.

"The foundation of personal consumption is a strong labor market. Consumers will spend money if they are

less likely

to lose their jobs. This is where more jobs must be increased, which is important for increased consumption. "

Various references in Japan

Similarly, Japan's economy has fallen sharply.

Although the legal system is different and the tax rate cannot be changed as easily as in Europe, there are still various opinions about the consumption tax.

There is a strong demand for tax cuts among the opposition parties, and Edano, the representative of the Constitutional Democratic Party, which was established as a new confluence party, said at a debate at the time of the representative election, The tax rate is drastically zero. "

On the other hand, although some members of the Diet are calling for a tax cut, the government and the ruling party are generally negative about the tax cut.

Mr. Nishimura, the minister in charge of economic revitalization, was asked at the Diet deliberation at the end of August that the tax should be reduced even if the period is divided as a measure to support the economy, but "consumption tax will be used for social security resources. And we have to keep in mind that it is a source of funding for free early childhood education and childcare. "

The change in the consumption tax rate is not being discussed concretely within the government and the ruling party.

However, there have been a series of remarks about the consumption tax, and it is expected that discussions will become more active in the future.

What is the point of discussion?

What should be considered as a point when looking at future discussions?

Professor Takero Doi of the Faculty of Economics, Keio University points out the following from the standpoint of opposition to tax cuts.

Professor Doi

"Tax cuts will open up financial resources for social security and jeopardize the sustainability of the social security system. Issuance of deficit-financing bonds will increase further, further increasing the government debt balance that has already reached an unprecedented scale. As a result, fiscal consolidation will become more difficult. ”“ Even if the tax is reduced for a limited time, a de facto “tax increase” will be carried out at the end of the tax cut, which will artificially create a factor that reduces consumption. It will be increased or decreased unnecessarily. "

On the other hand, Professor Takeo Hoshi of the University of Tokyo Graduate School, who takes a positive position that "it can be a policy measure," said as follows.

Professor Hoshi

"If you reduce taxes, tax revenues are likely to decrease, so there is a concern that your finances will deteriorate in the short term. However, the current economy is in an extremely difficult situation, and you should not spare your finances. For example, the tax rate If the tax is reduced by 2% for half a year, the tax revenue will drop by more than 2 trillion yen by simple calculation, but it is not a huge amount compared to the 13 trillion yen that was uniformly paid for 100,000 yen. "" The timed tax cut is over. Also, consumption will decrease, but the aim is to bring future consumption to the present. It should be recognized that the current economy is in such a difficult situation that it must be supported to that extent. "

What will happen in the future?

Should the current economy be supported by increasing the burden in the future, or should the burden in the future be avoided?

Opinions are divided among experts on the consumption tax.

However, Professor Hoshi, who is positive about tax cuts, added that there is one point to note.

Professor Hoshi

"The question is what is the purpose of tax cuts. Tax cuts are positive for consumption as a whole, but those who can reduce taxes and increase consumption are those who have sufficient income. Corona infection Income will decrease due to the expansion, and tax cuts will have little benefit to those in need. "

It has been more than 30 years since the consumption tax was introduced in Japan.

So far, the tax rate has never dropped, whether timed or not.

I think it is necessary to deepen the debate about who should be supported and what kind of policy is necessary for that purpose, not just the purpose of tax reduction or tax increase.

Teruyuki Kurihara,

Reporter, London Bureau

Joined in 1999

After working at the Ministry of Economic Affairs, he is currently

in charge

of the

European economy.

Keita Kage,

Directorate General of Asia

Joined the

Ministry of Economic Affairs in

2005

and was in charge

of

financial and financial coverage

from the summer.