In order to prevent the budget from ballooning, it is crucial to evaluate the effectiveness of needed measures and to narrow them down.
The government has compiled a broad outline of economic measures that will accompany the consumption tax hike to 10 percent, scheduled for Oct. 1, 2019.
When the consumption tax rate was raised to 8 percent in April 2014, the economy stalled, due to a rise in last-minute demand prior to the hike and a subsequent drop in consumer spending. Such a slowdown contributed to the government's postponement of the consumption tax hike twice over.
Consumption tax is the mainstay tax that is supporting the burden of ever-increasing social security costs. Unless there is a serious economic crisis comparable to that which followed the collapse of Lehman Brothers, the consumption tax rate must be raised without fail. It is understandable for the government to hammer out ways to level out any fluctuations in demand shortly before and after the tax hike.
Next year's hike will be implemented together with the introduction of a reduced tax rate of 8 percent, covering food and beverages -- excluding alcoholic drinks and dining out -- and newspaper subscriptions. The reduced tax rate would certainly help lessen the burden on general households.
Reduced tax rates are commonplace in European countries, but it is to be applied for the first time in Japan. Smooth implementation is needed.
If business operators pass on the full tax rise to shoppers through higher retail prices all at once, consumption could rapidly slow down. It is important for business operators to be able to flexibly set prices at their own discretion. The government will develop guidelines to facilitate this. No effort should be spared to make this known widely.
Think of the cardless
There are also problems with the latest measures.
So-called "premium merchandise vouchers," which enable holders to spend more than the cost of the vouchers, were issued when the consumption tax rate was previously raised. Although as much as over 200 billion yen was injected from the state's coffers, the effect on boosting consumption was limited. Further consideration is necessary to establish whether the approach is cost-effective.
Also to be introduced is a new system under which consumers earn shopping points if they make cashless payments at small- and medium-sized retailers. The government plans to have a system in place for a limited period of nine months, with funds for the shopping points to be borne by the state.
Prime Minister Shinzo Abe has suggested offering points worth 5 percent of purchases, a marked increase from the originally assumed 2 percent. He apparently wants to avoid an economic slowdown.
The aim of promoting the spread of cashless payments can also be understood. But there are many concerns about the system's implementation.
Smaller retailers in which payments continue to be made only in cash will be at a disadvantage. Additionally, it must not be overlooked that people, including seniors, who do not have a credit card would not benefit from the system.
From July 2020, the government said that it will launch "a local government shopping point" system for My Number identification card holders that people can use at stores in their local communities.
With a variety of initiatives involved, there is a risk that the system of measures may become too complicated, causing confusion at retail shops. The government should design a system precisely so that it is easy to understand for both business operators and consumers.
(From The Yomiuri Shimbun, Nov. 28, 2018)
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