A funny thing happened on the way to the consumption tax hike. The government, it appears, has lost its nerve.
Several years ago when the Liberal Democratic Party, with the urging of the Finance Ministry, adopted the previous ruling party’s plan to increase the tax from 5 to 10 percent in two stages, it sounded like both a no-brainer and an inevitability. At the time, the resurgent LDP launched the easy-money policy known as “Abenomics,” and for a while the economy picked up, so it wasn’t difficult to convince the electorate that the tax hike was for its own good. However, when consumption sank after the first phase of the hike went into effect in April 2014, the government balked and postponed the second phase from October 2015 to April 2017. More significantly, the LDP’s coalition partner, Komeito, promised its supporters during last year’s Lower House elections that it would exempt food and beverages from the next phase.
So the LDP is in a tough spot. On one side, it is watching its public support dwindle due to various policies, including the tax hike, that people don’t like and, on the other side, it’s got the Finance Ministry, which says it isn’t going to budge on the final move to 10 percent. As a result, the Finance Ministry has come up with a refund plan for lower-income consumers that no one seems satisfied with. But maybe that’s the point.
On a recent installment of the Bunka Hoso radio program “Golden Radio,” economist Takuro Morinaga explained how the government has proposed that these low-income consumers use the upcoming My Number system to register at point-of-purchase (POP) locations for consumption tax refunds of food and nonalcoholic beverages. The groundwork for the introduction of the My Number system starts next month, with every Japanese resident receiving an identification number for tax and social security purposes. In January, everyone receives a card with the number recorded on an IC chip, although at this stage it’s optional. When the second tax hike goes into effect in April 2017, consumers who make less than a certain amount of money can use the cards at retailers to register for the tax refunds.
As Morinaga pointed out, almost nobody thinks this system will work, and he himself predicts it will be “impossible” to carry out. First of all, the cost and trouble of setting up the system will be prohibitive: Retailers will have to install POP devices to read the cards. Then there’s the inconvenience: The consumer does not receive the refund at the POP, but only registers it and then must apply for the refund separately at a later date. And even then, they can only receive a maximum refund of ¥4,000 a year (which may be increased to ¥5,000, according to at least one report) regardless of how much food and drink they bought in that period of time.
Then there are miscellaneous problems that haven’t been addressed yet: What about vending machine sales? What sorts of measures should be put in place to prevent criminals from stealing people’s numbers and using them for their own benefit?
There are several theories for why this unwieldy solution has been proposed. One says that the My Number system has already proven to be unpopular — according to a Cabinet survey, only 24 percent of the people will opt to receive cards, a portion that may increase if people think they can use them for refunds. But as Morinaga points out, the inconvenience factor may overshadow whatever monetary advantages the system offers. In fact, he thinks the Finance Ministry made the system purposely inconvenient so that people wouldn’t use it. It’s more trouble than it’s worth, and since the ministry wants as much of the ¥1.32 trillion a year it projects it can collect after the tax rises to 10 percent, it is making it as difficult as possible for people to request refunds.
It’s a classic “top-down” plan that’s typical of the Japanese bureaucracy, in which people at the bottom have to make an effort to go to the people at the top to get what’s rightfully theirs. After all, if the Finance Ministry is only going to return ¥4,000 a year, why not just give poor people ¥4,000 a year outright and forget about the My Number system?
The LDP may have agreed to the plan just to buy time. The next Upper House election is scheduled for July, and there’s a feeling that if the party is desperate, it may postpone the consumption tax hike yet again in order to gain instant support from the electorate, even though the Finance Ministry would never countenance such a change.
But the argument over exempting food from the consumption tax hike is a smokescreen. True, the lower your income, the more regressive it is as a tax, but the main problem with Japan is that consumers here are already paying indirect taxes to protect food producers even before the consumption tax is added at the cashier.
As researcher Kazuhito Yamashita outlined in a Sept. 15 article in Asahi Shimbun’s web magazine Webronza, the stated reason for the ministry’s reduced tax plan for necessary foods is to “ease the painful tax feeling” for those people who feel that pain acutely, meaning the poor. In order to maintain artificially high prices for Japanese wheat, the government levies a 100 percent tariff on imported wheat. The government also has a complex and ever-changing subsidy system for rice farmers that effectively doubles the retail price of rice. Domestic butter, which has been in short supply for more than a year due to loss of production facilities and bad weather, is protected by a tariff that keeps imported butter expensive. The list goes on.
Yamashita estimates that these and other protection measures, which are political in nature and not really enforced to “ensure food security” — an aim that would require an overhaul of the agricultural sector — cost Japanese consumers about ¥1 trillion a year, so if the government really wanted to reduce the “painful tax feeling” while still being able to collect a perfectly reasonable consumption tax of 10 percent, it could start with this indirect tax that people have been paying more or less since the end of World War II.
Yen for Living covers issues related to making, spending and saving money in Japan on the second and fourth Sundays of the month. For related online content, see blog.japantimes.co.jp/yen-for-living.