TOKYO (majirox news) — Companies dependent on domestic demand are growing in fear of new Prime Minister Yoshihiko Noda’s preference for raising taxes as they believe it will put the brakes on Japan’s nascent economic recovery.
About 60% of Japan’s Gross Domestic Product depends on consumption and any reduction will burden rebuilding of the Japanese economy.
Noda has pledged to reform the economy and achieve economic growth at the same time, but businesses are seeking measures to stimulate consumption to support growth.
Japan Business Federation (Keidanren) Chairman Hiromasa Yonekura is a friend of Noda’s and has expressed an understanding for the need to raise taxes, but sent a warning to the new Cabinet during a speech on Aug. 31.
“Growth in the Japanese economy is indispensible for supporting reconstruction from the (March 11) disasters,” Yonekura said.
When the Cabinet of former Prime Minister Naoto Kan released its basic policy for restoration at the end of July, it calculated it would need 13 trillion yen ($169.8 billion) over the coming five years to fund recovery and suggested levying a temporary tax to cover the bulk of this amount. Noda is expected to maintain this policy. The government’s tax commission is currently studying several proposals to increase taxes and will present these to the government’s reconstruction headquarters by the middle of this month.
A bi-partisan proposal regarding reforms to the social welfare and taxation systems produced in June called for staged increases in the consumption tax until it reached 10% by the mid-2010s, up from its current rate of 5%. Noda is a strong proponent of this proposal and has expressed intent to present legislation to the Diet next year whose passage would lead to the implementation of these increases.
Markets have been sensitive to Noda’s desire to raise taxes. When he was elected president of the ruling Democratic Party of Japan (DPJ) on Monday, major department stores’ shares dropped, even as the Nikkei Index rose overall.
“It’s because raising the consumption tax rate will have an effect on department store sales,” a market analyst said.
Having shaken off the mood of restraint that hit the country in the immediate wake of the March 11 disasters, warmer weather from mid-July helped the economy move forward. Japan’s 10 major convenience store outlets grew 9.5% year-on-year in July and sales at department stores and for Cool Biz items were brisk.
A Cabinet Office survey in July of retailers nationwide found optimism in the economy picking up to its highest level in almost 4 1/2 years.
With the economy showing signs of improvement, businesses fear higher taxes could put a dampener on future growth.
“I’d much rather the government secured funds by reviewing spending and displayed a vision for future economic growth,” a spokesman for a major supermarket chain said.