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Editorial: Japanese gov’t should show clear vision for social security system

The consumption tax was raised from 8% to 10% on Oct. 1. This year marks three decades since the indirect tax levied virtually on all goods and services was introduced in Japan in 1989, as well as the tax rate going into double digits for the first time.

 

According to the Japan Research Institute Ltd., the financial burden on each household will increase by around 30,000 yen a year on average as a result of the latest tax increase. As long as the government requires taxpayers to shoulder such a financial burden, it should consider how to use the extra tax revenue as efficiently as possible and present a clear vision for the future of Japan’s society so that each and every member of the public can live without worrying about their livelihoods.

 

Japan is now undergoing structural changes in which its society is rapidly aging and the population is declining. The national government relies heavily on borrowings to finance snowballing social security expenses. Outstanding state debt has surpassed 1 quadrillion yen. The government should no longer leave its debts to future generations in an irresponsible manner.

 

The consumption tax is an important financial resource to support Japan’s aging society. Unlike income and corporate taxes, consumption tax revenue is hardly affected by economic conditions. Since wider generations pay the sales tax, working generations whose population is decreasing are not required to shoulder an excessive burden.

 

The regressive state of the consumption tax, in which lower-income earners are required to shoulder relatively heavier burdens, poses a challenge but the consumption tax rate for foodstuffs and some other items is being kept at 8%. The reduced tax rate is expected to help ease the extra burden on consumers and prevent the tax increase from depressing their spending.

 

There are expected to be occasions when consumers are confused by different rates of sales tax levied on take-out food products and those they eat inside shops. Still, the reduced tax rate for foodstuffs and other goods is projected to play a significant role in maintaining the consumption tax that is becoming an increasingly important financial resource for the state.

 

Business operators are trying to notify their customers of the tax increase by putting up leaflets showing the new prices of their goods and services following the hike. They should continue to keep consumers informed in more detail on the tax raise and the government should also extend assistance to smaller, short-staffed shops.

 

The system to provide points-based rebates for cashless payments at approximately 500,000 smaller retailers across the country is also feared to cause confusion to consumers. Because of the system, the tax rate in real terms differs depending on which store consumers make their purchases and what they buy.

 

It is essential to implement measures to prevent the consumption tax hike from cooling down the economy. However, such a complicated system could be rather counterproductive.

 

The consumption tax rate was raised to 10% in accordance with a 2012 three-party agreement among the then ruling Democratic Party of Japan, the then opposition Liberal Democratic Party and its ally Komeito. The accord was based on the government’s estimate of Japan’s social security outlays up to fiscal 2025, by which time all baby-boomers will be aged at least 75.

 

The aging of Japan’s population will peak in fiscal 2040 when all the children of baby-boomers will be aged at least 65. The government projects that the country’s social security spending will balloon to some 190 trillion yen by fiscal 2040, over 30% more than in fiscal 2025.

 

Prime Minister Shinzo Abe has asserted that there will be no need for another consumption tax hike for the next 10 years, but discussions on an increase in financial burdens on taxpayers are inevitable.

 

It is politicians’ role to create a social security system that is sustainable even in an aging society and show a clear blueprint of necessary burdens and benefits while trying to convince the general public of the necessity of such moves.

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