This is 天命（Tenmei）, the blog owner. In Japan, with the consumption tax hike scheduled for October 2019, many politicians seem to be against it. However, the consumption tax increase is not a single policy, but a set of two policies. Along with raising the minimum wage, we will explore the possibility of raising the consumption tax.
table of contents
- Issuance of government bonds is prohibited for economic growth! Can we really control the market?
- Don't be the first penguin to fail! Consumption tax rate is far lower than developed countries! ?
- The consumption tax increase is regressive and hurts the poor! Relaxed by raising the minimum wage
- What are the three arrows of Tenmeinomics? Raise the minimum wage! Consumption tax increase! Utilize internal reserves!
Issuance of government bonds is prohibited for economic growth! Can we really control the market?
There are politicians who vociferously oppose the consumption tax hike, saying it is harmful to economic growth and should be stopped immediately . Some of these politicians have declared that they are aiming for the abolition of the consumption tax itself, that is, a consumption tax rate of 0%, and public opinion has been greatly shaken.
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These populist politicians, who incite the public with their strident claims, use irresponsible methods to finance the abolition of the consumption tax . Issuance of government bonds as a source of funds is one of them.
We should reduce taxes and promote economic growth by issuing government bonds . This will naturally increase government revenue (government income from taxes). This in itself makes sense. This is because, in extreme terms, the problems of budget deficits, pensions, and social security should probably be resolved once the economy grows.
However, this does not mean that issuing government bonds profusely is a better idea than increasing the consumption tax. Recently, the modern monetary theory known as MMT has been the subject of debate. Proponents of MMT aim for economic growth by issuing government bonds to promote fiscal policy (typically building roads and public facilities) and creating demand (the desire to buy things).
However, I don't know much about the theory of MMT, but if we issue government bonds like this, hyperinflation may occur. Of course, we are proposing ways to prevent this from happening, but there seems to be a lot of debate as to whether it is really possible to manipulate the market to prevent hyperinflation .
Don't be the first penguin to fail! Consumption tax rate is far lower than developed countries! ?
Well, the consumption tax increase was said to be carried out to eliminate the budget deficit, that is, to ease the national debt . However, there is a theory that, depending on the conditions, the national debt can be wiped out, so the fiscal collapse (bankruptcy of Japan) due to hyperinflation as mentioned above will not occur, and people who are stimulated by the proliferation of government bonds. The current situation is that there are many.
However, as a Japanese citizen, I think that this kind of rampant issuance of national debt, that is, rampant debt issuance, is irresponsible. Whether they are proponents of MMT or academics who claim that the national debt can be emptied, they probably do not have a clear picture of what will really happen to Japan if they carry out a mass issuance of national debt .
This lack of imagination is the same way populist politicians rally support by making strident claims, without supporting them. I want to hear it. If you were to implement populist policies, would you be able to take responsibility for the failure?
It is true that financial failures have occurred many times throughout history. Each time, some countries overcome financial collapse and grow again. However, if the country's finances go bankrupt, companies all over Japan will go bankrupt, and the yen will lose credibility, and it will be rejected from the international financial market.Although they could still survive on that basis, they would no longer be able to import food. It's not hard to imagine the chaos that would ensue.
Some may argue that Japan's debt itself is already at a shogi-level limit, and that financial collapse is inevitable at some point. However, there are countries around the world that are suffering financially, not just Japan. Despite that reality, there is no need for Japan to become the first penguin to fail .
For example, in Japan, the consumption tax is 10%, but in other developed European countries, the consumption tax rate is around 20% . In Japan, there is also an opinion that if we raise the consumption tax rate by about 20%, we will no longer have to worry about debt problems.
In other words, although Japan has one of the worst financial conditions in the world, it can still be said to be one of the better-off countries among developed countries . You can almost hear people saying, ``I can't even imagine a consumption tax rate of 20%. My wallet is still tight.'' However, if we wait a little longer, we may be able to find a miracle drug that eliminates debt without causing failures such as hyperinflation. Therefore, there is no need to be too hasty in trying to get by by issuing government bonds profusely. It's just a matter of possibility.
The consumption tax increase is regressive and hurts the poor! Relaxed by raising the minimum wage
Now, let's get to the main topic. The reason this consumption tax increase has such a negative public image is probably because it is viewed as a stand-alone policy. However, the government is currently promoting not only an increase in consumption tax, but also an increase in the minimum wage .
Consumption tax increases are regressive. In other words, people with lower incomes are forced to pay more in taxes . Let's look at the regressivity of the consumption tax using a numerical example. Currently, there are people with an annual income of 10 million yen and others with an annual income of 4 million yen. Let's assume that the consumption tax is 10%. A person earning 10 million yen spends 50%, or 5 million yen, on consumption, and a person earning 4 million yen spends 75%, or 3 million yen, on consumption.
Here, a person who earns 10 million yen will be taxed at 10% consumption tax on 50% consumption, so they will pay 5% of the 10 million yen as consumption tax. In other words, it's 500,000 yen. On the other hand, for a person who earns 4 million yen, the tax will be 10% of the consumption tax of 75%, so 7.5% of the 4 million yen will be tax. In other words, it is 300,000 yen.
If you compare the absolute amount of taxes paid by both, it is clear that there are many people who pay 10 million yen. However, if you look at it as a percentage, it is 7.5% less than 5%, which means that a person making 4 million yen will pay 2.5% more consumption tax. In economics, this mysterious phenomenon is called regressivity .
So how can we reduce the burden on people with low incomes? What is important here is an increase in the minimum wage. The group that would benefit most from raising the minimum wage is the low-income group, who are working just below the minimum wage . Furthermore, it can be said that these low-income groups are the ones most affected by the regressivity of the consumption tax.
This consumption tax increase and minimum wage increase can be said to be a set of policies. Raising the minimum wage will increase income, while reducing the amount of money available for the consumption tax hike . Readers may wonder if it's plus or minus zero. However, I believe that the government's greatest objective is to reduce the fiscal deficit and eliminate the national debt through this policy.
If the minimum wage goes up, the cost of making things goes up, so prices go up, and because the size of a country's economy is determined by its wages, the economy also grows. However, as mentioned above, these two policies can be said to be policies that do not increase the amount of things that consumers can buy with a plus or minus of zero, and do not provide any benefits.
In other words, GDP (the total amount of new value added within a country) is often talked about in the news, but that number itself has no meaning. In the end, the most important thing for us as consumers is the ability to buy more things, that is, the purchasing power. Therefore, I would like the government to promote policies that increase our purchasing power .
What are the three arrows of Tenmeinomics? Raise the minimum wage! Consumption tax increase! Utilize internal reserves!
Well, the title of this article includes the description of three arrows. Regarding this description, it is not the three arrows of Abenomics, but 天命（Tenmei）'s three arrows of 天命（Tenmei）nomics .
These three arrows include the consumption tax increase, the minimum wage increase, and the use of internal reserves . Utilizing internal reserves is an idea that 天命（Tenmei） has recently featured on this blog. By effectively utilizing cash that cannot be used for consumption or investment, such as corporate internal reserves and deposits from private banks to the central bank, it is possible to alleviate the economic decline after the consumption tax hike and to support future economic growth. It is hoped that this will serve as a catalyst.
This trend of increasing corporate retained earnings is a global trend, so the use of retained earnings can be said to be an economic policy that can be used all over the world. The key point was to find cash that was not being consumed or invested , regardless of the company's internal reserves, and supply it to the market.
He then arbitrarily named the three arrows of Tenmeinomics, combining the consumption tax increase, the minimum wage increase, and the use of internal reserves. The use of internal reserves is also mentioned in related articles to this article, so readers who are interested should refer to them.
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