Government for the Riches

Warm for big firms and cold to individuals. That will be the concept of annual tax reform for FY 2014. Reflecting Abenomics, a key engine for Prime Minister Shinzo Abe’s primary agenda of changing post-war regime, the tax reform focused on revitalizing leading companies in Japan, or Nikkei 225 for example. The point is whether this supportive policy will lead to higher wage for workers and, even if it happens, to purchases to the extent Japan economy rallies. The reform does not seem to work for the latter purpose.

In addition to the tax reduction for capital investment done this fall, the consultative committee for tax system of leading parties, Liberal Democratic and New Komeito, abolish corporate tax for reconstruction from the Great East Japan Earthquake one year prior to designated end. To encourage spending for casual business meeting in French restaurants, sushi restaurant, or anywhere else, they will expand the amount of untaxed social expense account. Businessmen/women will surely be reluctant to go home early in the evening to care for their families.

On the other hand, they agreed on refusing introduction of lighter tax rate for daily necessaries, posing greater impacts on low-income families than the richer. The agreement also targeted small cars, which low-income families are likely to buy because of lower rate of car tax. The tax on a car with an engine of 660cc or smaller will be raised by around 50%. Even for rich businessmen/women, higher income tax rate will be applied in FY 2016.

The scenario of economy revitalization with new tax system is highly skeptical. Abenomics is a concept that stimulates psychology of economic mind, rather than actual economy. Even though the tax policy encourages spending for happy hour activities, based on a notion to regain snobby lives in “bubble economy” time, it does not stimulate employers’ mind for distributing their wealth to the workers. The leading parties, heavily supported by traditional interests, are still reluctant to introduce deregulation that may really encourage entrepreneurs’ mind.

Those are the reflections of basic concept of the administration, in which the decision makers foresee a society divided between leaders and followers. Abe thinks that current social security is too much to maintain healthy national budget. Regardless the appropriateness of the purpose, method is deadly wrong. Current government is fundamentally undermining Japan economy with a distortive policy that increases monetary basis with simply printing bills. Temporary enthusiasm over bubble economy will soon turn out to be illusion as we once experienced.