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Feb 2, 2019

2019: the year of the tax hike?

2019 is going to be a landmark year for Japan. We have the Imperial Abdication and Ascension in late April/early May. There are two big elections with the tōitsu chihōsen (unified municipal and prefectural elections) in April and House of Councillors election in the summer. Japan will host its first-ever G20 summit in Osaka in June, and then will be home to the Rugby World Cup in autumn.  


Still, the event that those of us living in Japan are more interested in has to be the planned consumption tax hike set for October 2019 and the impacts it may have.


2019: the year of the tax hike? photo


The plan

Right now, the consumption tax is scheduled to be raised from eight percent to ten percent. This was supposed to happen in 2015, but the administration opted to push it off, largely due to political reasons (Prime Minister Abe called a snap election shortly after the decision to delay the tax hike).  


Impacts?

A two percent consumption tax hike isn’t as much as the previous three percent hike that happened in April 2014, but household consumption still hasn’t fully recovered from the rise to eight percent. There are a lot of legitimate concerns that while at the macro level Japan has benefitted from the tax hike, there hasn’t been a corresponding increase in wages or overall household income. As a result, an additional tax would just be additional cost to Japanese residents with no immediate benefit to households.


2019: the year of the tax hike? photo


The ruling LDP-Komeito coalition has sought measures to minimize the impact by building a list of exempted items from the tax hike. Things like staple foods (milk, eggs, etc.) would not be eligible for ten percent tax. Of course, measures such as these won’t do much to allay the fears of residents or defray the impacts on households. As such, the consumption tax hike remains a policy question whose answer is not yet set in stone.


Will it or won’t it happen?

Up to this point, the Abe administration has been adamant that the consumption tax hike will take place in October. I remain skeptical, however, for two reasons: the April unified elections and House of Councillors election.


One of the cardinal sins in an election year in Japan is talking about a tax hike. In the past, parties have lost seats for even talking about tax hikes, let alone actually orchestrating one that will happen the same year as an election. In this case, there are two major elections set to take place, and I just don’t think the ruling Liberal Democratic Party-Komeito coalition is willing to take two consecutive hits to see through a tax hike that is likely to cause short-term pain for constituents despite the perceived long-term necessities.


My prediction is that the LDP-Komeito coalition will test the waters in the April unified elections. If they do well enough at the municipal and prefectural elections, they’ll stay the course and we’ll see the consumption tax hike in October. If the elections go poorly, the coalition will see a need to staunch the bleeding and will use a delay in the consumption tax hike as a means to curry favor before the House of Councillors election.  


So when might the tax hike happen if not in October 2019?


2019: the year of the tax hike? photo


I could see them delaying it for six months to “continue to study the impacts” until right before the Olympics. If they do that, they can get the major boost in consumption tax revenue from the business that will invariably come with the influx of tourism, staff, and sponsors for the Olympics, which will obscure the negative short-term economic impact on domestic consumerism that invariably comes with tax hikes.


So, in short, April will be the key month to see whether or not we need to tighten the purse strings later in the year.


Are you worried about the tax hike? Do you think it will happen? What are you doing to prepare for it? Feel free to use the comments section below!


[Tokyo Olympics photo courtesy of wikimedia commons]


genkidesuka

genkidesuka

Hitting the books once again as a Ph.D. student in Niigata Prefecture. Although I've lived in Japan many years, life as a student in this country is a first.

Blessed Dad. Lucky Husband. Happy Gaijin (most of the time).


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