No need to break the budget

With only about 20 days left before the introduction of a higher consumption tax, consumers need to work out a clever buying strategy. The tax rate raise from the current 5 percent to 8 percent starting on April 1 will place a greater financial burden on households and businesses. But consumers need to be careful when making purchases since there may be cases in which rushing to beat the tax hike will cause problems for their household budgets.

According to an estimate by Mizuho Research Institute, the 3 percentage point raise in the consumption tax rate will increase the annual financial burden by an average ¥57,529 for households whose annual income is less than ¥3 million and by an average ¥142,147 for households whose annual income is ¥10 million or more. In addition, planned increases in premiums for corporate pension and decreases in benefits under the nursing care insurance system will raise the burden of households.

When the consumption tax was first introduced in April 1989, people rushed to buy things from mid- to late March that year. It is likely that consumers will act similarly this time. A private research organization estimates that last-minute demand before the consumption tax raise this time will top ¥9 trillion, 1.7 times more than just before April 1997, when the consumption tax rate was raised from 3 percent to 5 percent.

It is not clear whether there will be big last-minute purchases this time. According to an Internet survey company, 18 percent of the surveyed said that they made such purchases by the end of January. They mainly bought high-price items such as houses, cars and interior goods including furniture.

In the October-December period, Japan’s gross domestic product increased an annualized 1 percent from the previous quarter. In the same period, consumer spending rose 0.5 percent from the previous quarter, higher than the 0.2 percent rise posted in the previous quarter. The increase in consumer spending is mainly attributed to the last-minute purchase of automobiles.

With April rapidly approaching, consumers may be tempted to stock up on daily necessities, and this is not a bad idea. But it would be wise to think twice before buying high-price items that are nonessential — especially newly released products — because there is a strong possibility that new improved versions of these products will be sold in the near future at lower prices.

This actually happened just before the TV broadcasting mode was changed from terrestrial analog broadcasting to terrestrial digital broadcasting in January 2013. Many people rushed to buy large-screen liquid crystal TV sets so they could take advantage of the eco-point discount system for home electronics. But in a short time, the prices of digital TV sets dropped by 50 percent.

Consumers who must closely watch their household budgets would be wise to remember that manufacturers will remain as keen as ever to sell their high-end products after the tax hike by taking steps to keep their costs competitive.