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Japan Raises Taxes on Its Spenders Despite Growth Worries Japan Raises Taxes on Its Spenders Despite Growth Worries
(about 1 hour later)
TOKYO — Yasuo Sugiuchi can’t avoid death, but he knew that — if he hurried — he would be able to escape taxes.TOKYO — Yasuo Sugiuchi can’t avoid death, but he knew that — if he hurried — he would be able to escape taxes.
The 52-year-old owner of a home repair business rushed to buy a new familial cemetery plot to beat a tax increase that could have a profound impact on the country’s spenders. Japan increased its tax on a wide variety of consumer goods and services, from toilet paper and tampons to computers and kimonos.The 52-year-old owner of a home repair business rushed to buy a new familial cemetery plot to beat a tax increase that could have a profound impact on the country’s spenders. Japan increased its tax on a wide variety of consumer goods and services, from toilet paper and tampons to computers and kimonos.
Graves cost about $28,000 to $37,000, so the increase in the consumption tax to 10 percent from 8 percent could have a significant impact on the price. Mr. Sugiuchi said he was pleased with his purchases, which included a tombstone engraved with “thank you for coming to see me” at the request of his mother and his wife.Graves cost about $28,000 to $37,000, so the increase in the consumption tax to 10 percent from 8 percent could have a significant impact on the price. Mr. Sugiuchi said he was pleased with his purchases, which included a tombstone engraved with “thank you for coming to see me” at the request of his mother and his wife.
With the money he saved, “our family could take a little trip nearby or go to a fancy restaurant,” he said.With the money he saved, “our family could take a little trip nearby or go to a fancy restaurant,” he said.
As the tax hike goes into effect Tuesday, the big question for Japan and Prime Minister Shinzo Abe is whether consumers like Mr. Sugiuchi will start to tighten their purse strings. Japanese consumers have helped prop up the world’s third largest economy as it grapples with trade tensions with President Trump and with other countries and as faltering global growth takes a toll on Japan’s export sector. As the tax increase goes into effect Tuesday, the big question for Japan and Prime Minister Shinzo Abe is whether consumers like Mr. Sugiuchi will start to tighten their purse strings. Japanese consumers have helped prop up the world’s third-largest economy as it grapples with trade tensions with President Trump and with other countries and as faltering global growth takes a toll on Japan’s exports.
Mr. Abe argues that Japan needs to raise taxes to pay its obligations. But if the tax makes consumers reluctant to spend, Japan could slip into recession, just as it did when Tokyo last raised the consumption tax five years ago.Mr. Abe argues that Japan needs to raise taxes to pay its obligations. But if the tax makes consumers reluctant to spend, Japan could slip into recession, just as it did when Tokyo last raised the consumption tax five years ago.
“The economy is already in a bad state,” said Toshihiro Nagahama, executive chief economist at Dai-ichi Life Research Institute, a Tokyo-based think tank. “The economy is already in a bad state,” said Toshihiro Nagahama, executive chief economist at Dai-ichi Life Research Institute, a think tank in Tokyo.
“To put it in terms of the human body,” Mr. Nagahama added, “exercising when you’re not in good health is probably unwise.”“To put it in terms of the human body,” Mr. Nagahama added, “exercising when you’re not in good health is probably unwise.”
The increase could test the signature achievement of Mr. Abe, who came into office promising to reform the country’s economy after decades of stagnation. While Japan still faces big economic challenges, like a declining population and underemployment of women, it has eked out modest growth since the last increase in the consumption tax in 2014. The increase could test the signature achievement of Mr. Abe, who came into office in 2012 promising to reform the country’s economy after decades of stagnation. While Japan still faces big economic challenges, like a declining population and underemployment of women, it has eked out modest growth since the last increase in the consumption tax in 2014.
But he also sees a need for the projected $46 billion a year the tax increase will raise. He argues that Japan will need to spend on assisting its aging population and on young families, who the government is counting on to drive up the country’s flagging birthrate. But he also sees a need for the projected $46 billion a year the tax increase will raise. He argues that Japan will need to spend on assisting its aging population and on young families, whom the government is counting on to drive up the country’s flagging birthrate.
The money could also help pay down the enormous national debt run up by his economic policies, which have buoyed growth with huge investments in infrastructure and loose monetary policy underwritten by government purchases of stocks and bonds. Japan’s debt ratio is about two and a half times its annual economic output, the largest among developed nations.The money could also help pay down the enormous national debt run up by his economic policies, which have buoyed growth with huge investments in infrastructure and loose monetary policy underwritten by government purchases of stocks and bonds. Japan’s debt ratio is about two and a half times its annual economic output, the largest among developed nations.
The tax would hit vast parts of everyday Japanese life. Most groceries, takeout meals and daily newspapers are exempted. Television news programs have broadcast segments explaining strategies for saving a few yen on daily basics, like toilet paper and stationery.The tax would hit vast parts of everyday Japanese life. Most groceries, takeout meals and daily newspapers are exempted. Television news programs have broadcast segments explaining strategies for saving a few yen on daily basics, like toilet paper and stationery.
Miki Matsushita, 26, and her fiancé had planned to wait until later this year to buy rings for their wedding in May. They ultimately decided they couldn’t put it off, even if that meant tightening their belts for now.Miki Matsushita, 26, and her fiancé had planned to wait until later this year to buy rings for their wedding in May. They ultimately decided they couldn’t put it off, even if that meant tightening their belts for now.
They moved in together in August, she said, and they need the money that would have gone to the tax.They moved in together in August, she said, and they need the money that would have gone to the tax.
Businesses like Sato Jewelry Honten in Tokyo’s jewelry district worry they could bear the brunt of the tax. Shoppers come to the neighborhood expecting to haggle, said Masaru Okubo, the owner, and his store will likely have to swallow the cost of the increase. Businesses like Sato Jewelry Honten in Tokyo’s jewelry district worry they could bear the brunt of the tax. Shoppers go to the neighborhood expecting to haggle, said Masaru Okubo, the owner, and his store will most likely have to swallow the cost of the increase.
“It will put us in a tough situation, but we want to prioritize our customers’ satisfaction,” he said.“It will put us in a tough situation, but we want to prioritize our customers’ satisfaction,” he said.
Mr. Abe’s last effort to raise the consumption tax almost ended in disaster. His government raised the tax to 8 percent from 5 percent in 2014, and the Japanese economy immediately sank into recession. The government then postponed an increase to 10 percent, which had been set to go into effect in 2015, and kept on postponing it until this year. Mr. Abe’s last effort to raise the consumption tax almost ended in disaster. His government raised the tax to 8 percent from 5 percent, and the Japanese economy immediately sank into recession. The government then postponed an increase to 10 percent, which had been set to go into effect in 2015, and kept on postponing it until this year.
Mr. Abe’s government is hoping for a different result this time around. This year’s tax increase is not as big, and some economists say fewer consumers rushed to make their purchases to beat the clock this time around. Mr. Abe’s government is hoping for a different result this time. This year’s tax increase is not as big, and some economists say fewer consumers rushed to make their purchases to beat the clock.
The government estimates the damage to economic growth will be around four-tenths of a percentage point. While smaller than in 2014, that is still a considerable amount for an economy that grew by 1.3 percent in the April to June period. The government estimates the damage to economic growth will be four-tenths of a percentage point. While smaller than in 2014, that is still a considerable amount for an economy that grew by 1.3 percent in the April to June period.
The government also has hopes to defray some of the impact of the increase through programs such as offering incentives for purchasing cars and houses. The government also has hopes to defray some of the impact of the increase through programs such as incentives for buying cars and houses.
In the first nine months following the increase, consumers can receive a discount of up to 5 percent on the purchase of certain items. The difference, which is financed by the government, is returned to consumers as points, which can be used at participating retailers. In the first nine months after the increase, consumers can receive a discount of up to 5 percent on the purchase of certain items. The difference, which is financed by the government, is returned to consumers as points, which can be used at participating retailers.
There is a catch. The points are available only for customers using electronic payment systems, such as a credit card or an app like Apple Pay. In part, the Abe administration hopes to wean the country off cash. About 80 percent of the country’s business transactions were cash-based as of 2016, according to the country’s economy ministry.There is a catch. The points are available only for customers using electronic payment systems, such as a credit card or an app like Apple Pay. In part, the Abe administration hopes to wean the country off cash. About 80 percent of the country’s business transactions were cash-based as of 2016, according to the country’s economy ministry.
So far 730,000 retailers have signed up for the system, according to a news release by the government ministry in charge of the economy, trade and industry. So far, 730,000 retailers have signed up for the system, according to a news release by the government ministry in charge of the economy, trade and industry.
Many consumers may have already made their essential purchases, as Japan’s funeral industry shows. Mikage, a Japanese company that helps people make their last arrangements, had been advertising savings of as much as 20 percent for those who made their purchases before Tuesday.Many consumers may have already made their essential purchases, as Japan’s funeral industry shows. Mikage, a Japanese company that helps people make their last arrangements, had been advertising savings of as much as 20 percent for those who made their purchases before Tuesday.
Mr. Sugiuchi, the home repair business owner, had long been planning to buy a family plot in Yokohama, the city where his 83-year-old father lives. Earlier this year, he noticed fliers in his neighborhood entreating people to buy their plots before the tax went up. Mr. Sugiuchi, the home repair business owner, had long been planning to buy a family plot in Yokohama, the city where his 83-year-old father lives. This year, he noticed fliers in his neighborhood entreating people to buy their plots before the tax went up.
After discussions with his family, he made his move in July. “We had only two months until the end of September to decide the location and the tombstone design,” he said, “but we were able to finish everything on time.”After discussions with his family, he made his move in July. “We had only two months until the end of September to decide the location and the tombstone design,” he said, “but we were able to finish everything on time.”
Haruka Iwamoto contributed reporting from Tokyo. Haruka Iwamoto contributed reporting.