Editorial: More discussion needed before raising consumption tax to 10%

Japan's real-term gross domestic product (GDP) in the April-June quarter shrank at an annualized rate of 6.8 percent from a year earlier. The sharp decline is attributed to a steep fall in consumer spending following last-minute demand for automobiles, electric appliances, clothing and daily necessities prior to the consumption tax increase from 5 to 8 percent in April.

The prices of foodstuffs and other daily necessities have risen, dealing a serious blow to household budgets. Wages are beginning to pick up but that is still not enough to make up for the tax increase as well as rises in consumer prices attributable to other things apart from the tax hike. Many consumers feel it increasingly difficult to make ends meet. Whether consumer concern about livelihoods can be dispelled and consumer spending will grow is a key to supporting the economy after the consumption tax is to be raised to 10 percent in October 2015.

Noting that Japan's GDP in the January-March quarter grew at 6.1 percent, the government is emphasizing that the economy moderately recovered in the first half of this year. But it is naive to conclude that the economy will slow down based only on the figures in the April-June period. However, the rate of fall in supermarkets and department stores' sales figures in June is larger than that in May. The sales of compact vehicles that had been brisk suffered a plunge in July. There is no denying that consumers have reduced their spending more than expected following the tax hike.

This summer, the prices of butter, cheese, ham and sausages were raised because the costs of their materials increased, and eventually this led to rises in the prices of canned foods, sweets and foods served at restaurants. Gasoline prices have remained high. Since the consumption tax hike in April, the consumer price index has been increasing more than 3 percent from the corresponding months of last year.

How about household income? Government statistics shows that workers' monthly wages have been growing around 0.5 percent from a year earlier since March. Still, the real-term wage index, from which inflation is deducted, fell about 3 percent from a year earlier from April to June. Workers' real-term income has decreased, forcing them to keep a tight hold of their purse strings.

As part of Abenomics, an economic policy mix promoted by Prime Minister Shinzo Abe, the government has carried out dramatic credit relaxation and swiftly spent taxpayers' money to help improve companies' business performances. However, the government has left efforts to increase household income on the back-burner. Thanks to the weaker yen and rises in share prices, listed companies achieved good profits last business year. Major companies raised wages for their employers by more than 2 percent for the first time in 15 years. However, non-regular workers and employees of small and medium-sized enterprises have not enjoyed such benefits.

Executives of companies that are enjoying high profits have come under mounting pressure to use increased profits to improve workers' wages, such as hikes in monthly salaries and hiring non-regular workers as full-time employees, as well as to invest more funds in efforts to stimulate demand.

Economy, Trade and Industry Minister Akira Amari has pointed to the possibility that the government will implement additional economic stimulus measures saying, "We're prepared to swiftly respond if necessary." However, it is obvious that traditional stimulus measures centering on public works spending are not effective enough.

Toward the end of this year, the government needs to hold debate on whether the consumption tax should be raised to 10 percent in October 2015 as scheduled. Such a hike would further increase the financial burden on households. Now is the time for the government to consider sufficient measures to support household budgets as part of its discussions on how to stabilize the social security system and help rehabilitate state finances.

August 14, 2014(Mainichi Japan)