Monday, July 14, 2014

Commentary #01

I've had to follow the news kind of carefully over the last year or so because one of my conversation students likes discussing current events. One specific item that we'd talked about was the forced raising of the sales tax. It had been at 5%, and was going to go to 8% at the beginning of April. At the time, the student said that he supported the tax increase as long at it didn't include vital items like food.

Well, the increase was across-the-board, and yes, food prices all went up as a result. This is particularly hard on anyone on a fixed income, because their incomes aren't adjusted based on inflation. Anyone living on a government pension that needs more assistance is just going to put an additional burden on public programs that will require even higher taxes.

One side effect is that part-time and contract workers are being squeezed by employers that claim their paychecks are subject to the sales tax. One specific contractor I know of announced that payment for work would have an additional 3% withheld specifically because of the sales tax. So, not only does your purchasing power suffer, your base income is taking a major hit for some people.

I've talked to a few housewives about this, and they all made sure to make their major household purchases (furniture, curtains, housing supplies) before the tax increase had gone into effect. They feel squeezed already, and are shopping specifically to find bargains. Since Japan has been in a recession for over a decade, new university grads are failing to find jobs, and companies refuse to increase salaries or bonuses, it's kind of obvious why the government announced that consumer spending had been down for April.

The thing is, government officials still claim to be optimistic that spending will increase again, and leaders like Prime Minister Abe continue to push for "the courage" to implement the planned additional 2% tax increase to bring the total sales tax to 10% across the board.

Japan is already one of the most expensive countries to live in, and tourism has dropped due to a combination of the high yen, high prices, and the effects of the Fukushima reactor meltdown. The country complains about a lack of workers for caring for the elderly and thinks that bringing in foreign nurses from Malaysia and Singapore will help, but the payment for such nurses is too low to justify their staying here long-term.

One of the expressed reasons for the sales tax increase was to try to bring Japan's debt back down. But, Abe's public plans are to revise the constitution to remove the ban on military service, and to increase military spending. A few days ago, either Abe or one of his aids angrily stated that they refused to use the money they'd worked so hard to amass from the tax increase, on medical insurance for lazy people (in response to a request for improving national health care coverage).

Along with the tax, Abe's administration claims to be trying to "drill through the bedrock vested interests in Japan". On the surface, this appears to be intended to remove self-serving life-long bureaucrats from government. Given that many high-profile missteps have been due to incompetent bureaucrats running certain ministries or companies (Fukushima/Tepco, JR, the highway systems), lessening the stranglehold they have over the government would be a good thing.

The problem is, if you actually look at what Abe is targeting, it's things like the law requiring companies to pay overtime to employees. Many workers in Japanese companies are already putting in illegal unpaid overtime. Repealing the regulations that protect workers will just result in more companies paying their workers even less than they already do. Combined with Abe's attempts to repeal the law requiring employers pay for overtime work along with everything else, increasing the sales tax to 10% is almost guaranteed to bring consumer spending to record low levels.

The question is "Why?" Why apply the brakes to spending when the economy is still stalled? Other than to divert tax money to the military complex, is the idea to squeeze the middle class out of existence? I wish I knew.

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