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Consumption tax hike lowered consumption by 1 trillion yen

  • 2015-01-14 15:00:00
  • , Sankei
  • Translation

(Sankei: January 14, 2015 – p.1)

 

 In a report titled “Japan’s Economy 2014 – 2015” on the current status of Japanese economy announced on Jan 13 by the Cabinet Office, the government showed a trial calculation that the rehike of consumption tax to 8% in last April caused a rise in prices, which reduced real income and pushed consumer spending down by about one trillion yen. The figure is equivalent to 0.2% of the real gross domestic product (RGDP). This corroborated the current economic downturn that has been caused by the counteraction of the minute rise in demand and reduction of real income.

 

 Detailed analyses centering on changes in economy with the rehike of consumption last April were conducted, according to the report. The estimate of loss by counteraction after the last minute rise in demand amounted to 2.5 to 3.3 trillion yen including cars and electric appliances. The figures are converted to 0.5 to 0.6% of RGDP.

 

 The breakdown of the loss by the counteraction are 2.5 trillion yen in durable goods such as automobiles; and 0.5 trillion yen in nondurable goods such as foods and drinks.

 

 The report also estimated that about one trillion to 1.6 trillion yen, equivalent to 0.2 to 0.3% of GDP, decreased by the counteraction in housing.

 

 Furthermore, the report suggests that pay increase has not caught up with the rise in prices caused by the consumption tax rehike, which “brought about the real income reduction and will affect future consumer spending. After the rehike of consumption tax, economy-mindedness has grown among the low-income group and families with small children, which eventually pushed down consumer spending by about one trillion yen for the periods of April to June and July to Sept in FY 2014, the report analyzes.

 

 In addition to these factors that pushed down economy, on account of unseasonable weather during summer, RGDP for FY2014 ended up being minus 0.5% compared to the previous year, for the first time negative growth in last five years since FY2008 when the Lehman shock took place.

 

 In order to realize sustainable growth of Japanese economy, efficient use of workforce and sooner pay increase higher than rise in prices are necessary, concluded the report.

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