It is essential to secure a stable source of revenue so that the current social security system can be converted into one designed to serve all generations. The prime minister's latest move can be described as clearly stating his determination to achieve this.
At an extraordinary Cabinet meeting Monday, Prime Minister Shinzo Abe formally expressed his intention to raise the consumption tax rate from 8 percent to 10 percent on Oct. 1 next year.
"By implementing all possible measures, we'll do our utmost to ensure [the tax increase] does not adversely affect the economy," he also said.
Economic conditions have continued to recover for a long period despite doing so at a mild pace. The prime minister deserves praise for demonstrating his intention to increase the consumption tax rate to 10 percent, as earlier planned.
To cover increasing social security costs due to the aging of society, it is inevitable to raise the rate of the consumption tax, which cannot be easily influenced by the economy. It is also necessary to secure a new revenue source with which to improve social security programs intended for younger age groups, such as child-rearing assistance.
There are causes for anxiety about the future, including trade friction between the United States and China as well as volatile changes in emerging economies. Unless there is a serious economic downturn comparable to that which followed the collapse of Lehman Brothers in the future, however, the consumption tax increase must be realized without fail.
Behind the prime minister's early declaration of the implementation of the tax hike was his wish to encourage relevant organizations and private business operators to make necessary preparations. It is hoped that a drop in consumer spending that may follow the tax raise and confusion at retail stores or elsewhere will be averted.
Work on preparations
In the past, there were many cases in which low consumer spending lasted for a long time in reaction to a consumption tax hike, preceded by a rise in last-minute demand, a situation in which people get their purchases out of the way prior to the tax increase.
Based on this lesson of the past, the government intends to come out with economic measures aimed at easing the impact of the tax increase. Main pillars of the plan will likely include expanding subsidies for home purchases and reducing automobile-related taxes.
In consideration of small and medium-sized business operators, the government is also considering a plan to introduce a "2 percent point refund program" for a limited period, based on government subsidies.
Under the scheme, consumers would be granted shopping points worth 2 percent of their purchases -- a figure that compares with the rise of two percentage points in the tax rate -- if they make cashless payments with credit cards or by other means, thereby enabling them to use these points beginning the next time they go shopping.
The program seems to also be aimed at supporting the expansion of cashless payments that are conducive to increasing economic efficiency.
If the scheme is realized, it will ease the burden borne by consumers. However, there will remain such problems as how equipment for cashless payments should be spread among small and medium-sized business operators. It will also be difficult to draw a line between the payments covered by the plan and those excluded, while also devising a concrete method for granting consumers such points. Quick efforts must be made to deal with these issues.
Are there no other clever measures to underpin consumer spending? It is hoped that the public and private sectors will jointly exert wisdom in this.
An unchanged tax rate of 8 percent will be applied to food products and regular-subscription newspapers. There have been delays in making such advance preparations as retail stores updating their cash registers or buying replacements. The government needs to make all necessary preparations known to those affected.
(From The Yomiuri Shimbun, Oct. 16, 2018)
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