Real Effect of the Tax Hike

(TAKAHASHI Yoichi, PPPC Chairman)

I’ve been watching the economy since this April when the consumption tax rate was hiked. What raised my curiosity first was the family budget survey by the Ministry of Internal Affairs and Communications released on June 27.

Mass media did not report the survey because there were releases of the labor survey and the consumer price index by the MIC on the same day. That was the background of my article “Worst 2 in the past 33 years!” (http://gendai.ismedia.jp/articles/-/39708) published on Gendai Business, which stimulated comments from everywhere.

Then I wrote an article “Index shows bad economic signs” (http://gendai.ismedia.jp/articles/-/39839) given the poor figures released in the machine orders survey by the Cabinet Office on July 10. I wrote another article “triangular deterioration of consumption, housing and machine orders” (http://diamond.jp/articles/-/56518) on Diamond online given the bad figures in the house-building orders survey released by the Ministry of Land, Infrastructure, Transport and Tourism on June 30.

Despite all these bad figures, the government has maintained the view that “the Japanese economy is on a moderate recovery trend” and never mentions a recession. The Monthly Economic Report released on July 17 and the White Paper on Economic and Fiscal Policy released on July 25 were written on the exactly same tones, which caused me to write “Objection to the Monthly Economic Report!” (http://gendai.ismedia.jp/articles/-/39916) and “strange analysis in the White Paper that denies negative effects of the tax-hike” (http://gendai.ismedia.jp/articles/-/39956).

The “bad figures” above refers to the fact that the figures show comparatively bad situations than the past two times of the consumption tax-hike.

Statistics is like a medical checkup and the economy can be diagnosed through various numerical figures.

What I have written in the recent articles is the warning hinted by the official statistical figures that the economy is on the verge. But the government’s explanation sounds as if the economy is getting better looking at the very few good points among all the other numbers in the medical examinations. It is like a doctor diagnosing the author who has metabolic syndrome as okay because a very few numbers showed a good sign.

However, given the June’s statistics on the mining and manufacturing production released on July 30, some private-sector economists or government officials started voicing confusion; its production index dropped by 3.3% from the previous month. Among 15 types of industry, 14 showed decreases and 1 performed a flat, and no industry showed a positive sign.

Especially problematic index is the stock, suggesting that unintentional overstocking is taking place.

The following chart indicates the stock-circulation with stocks in the horizontal and shipping in the vertical axes.

*Chart: by PPPC based on the mining and manufacturing industry index (Ministry of Economy, Trade and Industry)

It has shown a clockwise rotation in the process of economic cycle. It is located at 3/4 circulation as of June, which suggests that the economy will likely shift to a declining stage.

Let us remember that most economists at the time of last autumn were saying there would be no negative effect on the economy even if the consumption tax was raised. I wonder how they would explain the current situation.