Still riding high from their electoral landslide last month, the conservative Liberal Democratic Party is proposing to raise the national consumption tax from 5% to 10-15% in order to pay for rising welfare and pension costs. The Communists had been warning about us about this Trojan Horse scheme — first postal reform, then a hike on regressive taxes — but we ignored them (mostly because their leader Shii Kazuo looks just like Rick Moranis.)
Despite the deflation of recent years, Japan’s consumer prices are still some of the highest in the world, and while the fabled $6 cup of coffee is currently facing extinction (at least outside of trendy cafés), eating fruit on a frequent basis continues to require an upper middle-class income. I complained to some older, richer friends the other day that you can’t find meals under ¥500 in Japan, and they were befuddled as to how I was eating for less than ¥1000. I survive this student life only through constantly scraping the bottom of the culinary barrel — homemade hayashi rice, Matsuya chicken curry (¥390!), multiple McDs ¥100 cheeseburgers, Saizeriya pastas — and I still end up spending 2x every month what I did in New York City. Less than ¥50,000 a month on food, and I feel like I’ve made it under budget.
Why is Japan so expensive? Some of it comes from the fact that so much has to be imported to this rocky island devoid of natural resources. But, mostly, the high prices are a built-in welfare system. The government protects inefficiencies in the economic structure through protectionist policies as a way to increase employment. Marui Young doesn’t “need” such a massive wrapping staff, but they’ll take on the extra people as long as you are willing to pay extra for it. Efficient labor and distribution systems lead to lower prices but also less need for human inputs (at least in the short run.)
I’ve always thought this idea of placing welfare inside of private business was an ingenious way to keep incomes equally distributed and labor motivation high. But now that Japan’s high growth days are over, the high prices suppress consumer demand and kill economic momentum. And to add a 15% tax on top of these built-in “private taxes” would make Japan terribly cost-oppressive and kill off the remaining vitality of the consumerist life. Clerical workers may still save up to buy that designer handbag, but they’ll be picking up Yoshinoya for take-out for an extra month to make up for it.
Why not use payroll taxes or income taxes to solve this problem? Why use a regressive tax that primarily punishes the lower classes? Koizumi promises to avoid the consumption tax hike during his term (too busy with antagonizing Asia with Yasukuni visits, no doubt), but the ball is bouncing in that direction. Goodbye, the $6 Cafe Renoir cup of coffee! Welcome, the $6 homemade cup of coffee!