In What Case a Tax-Hike is Acceptable?

(TAKAHASHI Yoichi, PPPC Chairman)

My prediction in the previous column (Experts’ Meeting on Tax-Hike and Possibility of Snap Election) seems to have been right. At the moment, many media rumor a schedule of Lower House dissolution on November 19 (taian) – election on December 14 (tomobiki).

It is needless to say that Prime Minister has the exclusive authority over Lower House dissolution, so we have to wait for Prime Minister Abe to come back from his trip abroad. But Nagata-cho has already been busy preparing for a next election and it seems to be difficult to hit brakes to the momentum.

In any case, GDP in the July-September quarter, whose first flash will be released on November 17, will greatly attract the public attentions. Assuming that the consumption tax rate is to be really hiked to 10 percent, how much GDP should be attainable?

Let’s try some calculation. The real GDP (annual base) in the January-March and April-June quarters in 2014 was respectively 535.0 trillion yen and 525.3 trillion yen. There was a dashing-on demand in the January-March quarter before the tax-hike and the April-June quarter saw a decreased demand as its reactionary effect.

If there wasn’t the tax-hike to 8% in this April, there should have been around 2% of growth in both the Jan-Mar and Apr-Jun quarters compared to the previous year. To note, both the July-September and October-December quarters in 2013 had actually witnessed 2.4% of positive growth. If that was the case, the real GDP in the Jan-Mar and Apr-Jun quarters should have been, respectively, 531.5 trillion yen and 536 trillion yen. It means that the dashing-on demand before the tax-hike amounted to 535 trillion (the actual rate) - 531.5 trillion (supposed rate) = 3.5 trillion yen. The same amount would have been decreased in the Apr-Jun quarter as its reactionary effect. Yet, more than that, the whole GDP rate has been decreased by 7.3 trillion yen, which should be considered as the negative economic effect of the consumption tax hike in April.

Dashing-on Demand and its Reactionary Effect, Income Decrease by the Tax-Hike

(Chart: drafted by PPPC)

This negative effect of the tax-hike should be continuing to the same extent in the Jul-Sep quarter. The GDP should have been 538.4 trillion yen if not for the tax-hike, but it will possibly be around 531.1 trillion yen smaller than that by 7.3 trillion yen for the negative effect of the tax-hike. Although the rate is still smaller than the rate which should have been gained, those in favor of the tax-hike will likely OK the number which is +4.5% from the previous quarter. To repeat, those in favor of the tax-hike will admit another tax-hike to 10% if the GDP in the Jul-Sep quarter is to be announced as around +4.5%.

Of course, such a rate is not at all permissible to the author having voiced avoiding the tax-hike. The author cannot agree with the tax-hike unless the GDP in the Jul-Sep quarter amounts to 538.4 trillion yen which should have been gained if not for the tax-hike plus +2% from the same quarter in the previous year. It is equivalent with +10% from the previous quarter.

Goal of “TFR 1.8%”

(HARA Eiji, PPPC President)

The government’s Council on Overcoming Population Decline and Vitalizing Local Economy in Japan, composed of 12 members, in eye of releasing its “long-term vision” and “comprehensive strategy” in December, announced their respective outlines on November 6.

One of the most important issues regarding the local revitalization is the population. One starting viewpoint of the government is that quite a few local governments will disappear someday by the declining population and population flow-out to urban areas as long as the population continues to decline at the current speed.

With regard to this point, the outline of the “long-term vision” released this time showed the following “future directions” to be sought.

1.         To hit brakes to the population-decline to secure “100 million 50 years later.” To that end, improvements to “TFR (Total Fertility Rate) 1.8%” will be sought (which more than half of the OECD countries have accomplished).

2.         To correct the over-concentration in Tokyo.

The reason behind the second point <correct the over-concentration in Tokyo> is the government’s perspective that the “over-concentration in Tokyo is causing the decline of TFR.”

However, although it is true that TFR in urban areas exceed that in rural areas currently, there is no inevitability that “TFR are low in urban areas” from international comparisons. Rather, the issue of declining population should be controllable if proper countermeasures to the population problem are to be taken in urban areas, hence the issue of over-concentration in Tokyo and its appropriateness should be a different point of discussions.

The issue of “over-concentration in Tokyo” will be discussed some other time, and this time, let’s discuss the issue of TFR.

Many developed countries have accomplished more than 1.8% of TFR (France 2.01, U.K. 2.00, Sweden 1.98, U.S. 1.93 in 2010) and compared to the fact the number have improved largely in the recent 10-20 years in France, U.K., and Sweden, it is true that Japan’s 1.4 has a lot to be dealt with.

(See, for example, Cabinet Office http://www.kantei.go.jp/jp/singi/sousei/souseikaigi/dai1/sankou.pdf p.19)

Yet, the problem is how to achieve that goal.

Looking at the present data;

①       There are no major changes in the number of children which a couple desires to have and actually has in the recent 30-40 years.

(Number of average number of children which couples desire to have and actually schedule to have
Source: White Paper on Declining Number of Children 2014)

①       On the other hand, the rate of unmarried persons in their thirtieth increased largely from around 7% to 30% in the recent 30 years. This is the major factor accelerating the decreasing number of children.

(Rate of unmarried female in ages
Source: White Paper on Declining Number of Children 2014)

Based on these facts, countermeasures to the issue of shrinking number of children should be considered in course of solving the following two points.

i.              Many couples give up having as many children as they had originally desired for economic reasons

(Reasons for not having the number of children they had desired to; according to wife’s ages
Source: White Paper on Declining Number of Children 2014)

i.              People (esp. male) who cannot step into marriage for stability reasons are becoming the main cause of declining children

(Reasons for not having the number of children they had desired to; according to wife’s ages
Source: White Paper on Declining Number of Children 2014)

Specifically, measures covering such points as the following must be considered;

l  Lowering the child-rearing costs through expansion of allowances/supports and tax measures

l  Improvement of the child-rearing environment, e.g., eliminating the nursery waiting list (equal-footing of private companies and social welfare corporations, relooking of the standard of childcare workers, etc.)

l  Labor reform (improvement of the youth’s working environment by realizing the principle of same work, same wages, building of the working environment in which one can get back to the work after leaving the office for having birth of children, etc.)

Especially, the efforts should not include just the budget measures but the ones that challenge the so-called “bedrock regulations” in the fields of nursery or labor. It will be the test whether the “TFR 1.8%” will be no more than a flowery slogan or the serious goal to be accomplished.

Experts’ Meeting on Tax-Hike and Possibility of Snap Election

(TAKAHASHI Yoichi, PPPC Chairman)

The Cabinet Office on October 29 announced to hold meeting with experts to discuss validity of the next consumption tax hike to 10% scheduled in October 2015 from November 4 at the Cabinet Office. The experts are 42 figures, around half of which were reshuffled from the last year’s members. Still, it is predicted that many, more or less 70%, will likely voice in favor of the tax-hike.

The meeting are scheduled on November 4, 13, 14, 17, 18. What requires attentions is the release of GDP update in July-Sep period scheduled on November 17. Taking the schedule into consideration, discussions will likely flow into such a bureaucratic-prone scenario that the experts first voice necessity of the tax-hike, then negative effects of the past tax-hike will be confirmed by the latest GDP update, then someone will insist urgency of economic measures to mitigate the negative economic impacts.

In the meantime, in the political arena, there is a possibility of Lower House dissolution and a snap election on the issue of whether to suspend the scheduled tax-hike alone. It is possible that the Cabinet compiles outline of the next fiscal year’s budget by suspending the tax-hike and calls a sudden election; lesson from the experience of the Aso administration which was pressured into the Lower House dissolution and consequently lost the power.

More specifically, the schedules are rumored to be Lower House dissolution on November 19 (taian: lucky day on the Japanese calendar) -> election on December 14, one that resembles two years ago when LDP came back to power (Lower House dissolution on November 16 -> election on December 16). After hearing opinions of the experts until November 18, Abe calls on an election by stating he wants to hear opinions of the national public.

The Sundays in December and their auspiciousness are 7 (sensho: a day on which bold actions are supposed to turn out well), 14 (tomobiki: a day on which one's bad luck is thought to affect one's friends), 21 (senbu: a day on which it is supposed to be better to avoid disputes and hurried actions) and 28 (taian). December 28 is the lucky day but it is difficult to do elections in the year-end. Because Dec 21 is the senbu, December 14 will be the right day to call an election, and by calculating back the date November 19 will be the day to dissolve the Lower House; right after the meetings with the experts are finished.

Another alternative is to call a snap election in mid- or end-January by shortly extending the current Diet session scheduled to end on November 30.

The recent Cabinet reshuffle was a temporary one until the next full-scale lineup in the next year, however, the scenario has been upset by resignation of the two female Cabinet members. Still, thanks to the damage-control efforts, the Cabinet and ruling party approval rate has been on the uptick, respectively 50% and 40%. So now the possibility of a snap election has been rumored.