The Prime Minister is taking a lot of efforts to keep his nerve over the consumption tax, but the question is for how long?
Numerous speculations have been made, however some say it was wrong to raise the key tax while some say, it had to be done but this major step might affect the failing economy of the nation as well as an individual. For many years the Political Pundits are discussing on the rise of Japan’s consumption tax i.e. (value added tax) in order to control the large public debt. However in April, Shinzo Abe and his government increased the tax implemented by the previous government from 5% to 8%. This raise is still low as compared to the developed nations standards and surprisingly this raise has started more cry than many predicted.
Meanwhile there have been reports from Tokyo’s economic hit cities to rural regions stating a hit in spite of already struggling recovery.
Consumption tax was earlier raised in 1997 and during that year the government again came under extensive pressure. It led to a push from stability in recovery back to recession. This move came during the financial storm in Asia, and situations like bad home loans crisis hit the Japanese nationals. With the raise in tax, Shinzo Abe expected a hit in the nation’s economy but not intense enough expecting the people to return to their house hold.
With the increase in tax and limping economy, the recession is back on the memo. Surprisingly the economy shrank by 7.1% in the second quarter of this year. Economists are getting curious on the GDP status of the third quarter for this year. Indeed they should, as one more hike may trigger instability within markets.
Meanwhile the government now plans to increase the GDP growth rate by 10% in the October of 2015, by increasing the consumption tax. Now it’s entirely up to Mr Shinzo Abe as he must decide whether he will increase the tax or postpone it. It has also started an internal battle within Liberal Democratic Party and its close advisors. On the other hand opposition party and those who opposed the tax claims of the current circumstance as a repercussion of playing with fragile economy. Many fear that this could impact the LDP’s image in the next elections during spring. However a nation with a gross public borrowing of 240% will take enormous amount to cover during the fiscal year of 2014. Meanwhile the Finance ministry has always supported the need for consumption tax.
In this tough situation Mr Abe has to look for an alternate solution as this increase in consumption tax would benefit the people, on the contrary destabilize the economy. Unable to handle the situation many raise questions about Mr Abe’s commitment towards the economic programs for the nation.
Members of political parties discussing the rise and fall of the bill will be left empty handed if the Finance Ministry gets in the way. Meanwhile the government spent almost 51.4 billion dollars to counter the ill effects produced with the launch of the tax and its increase. This enormous spending on the general public was not widely successful. A shortage of workers in the electrical industry showed delay in projects poor financial growth of its people. If the government tend to increase the rate, it will have to spend almost double on the general public work which will lead to vast instability in financial accounting. The Bank of Japan is now working under pressure to form up anew monitory policy for quantitative easing.
In a recent survey by local agency, almost seven–tenths oppose another increase in the consumption tax. The government is now considering food stuffs and basic necessity items as bait for the consumption tax. No matter how the government deal with this complicated issue, the consumption tax will remain a big headache for the government.
By,
Anant Mishra
Former Youth Representative
United Nations