Japanese consumption tax increases to 8% today; 10% in October 2015
Today, Japanese consumption tax increased for the first time in 17 years in order to cover growing social security costs due to an aging population.
The tax rate was raised to 8% from 5% which, it is estimated, will raise an extra JPY 5 trillion (USD 50 billion) in tax revenue for the government in 2014 and an extra JPY 8 trillion in tax revenue in 2015.
The increase is a counterpoint to the government's JPY 5.5 trillion (USD 55 billion) stimulus package last year.
The tax increase is touted by the central government as needed revenue to help balance its debt which is estimated to be over JPY 1,000 trillion (USD 10 trillion) or more than 200 percent of GDP.
However, there is real concern that the increase will lead to contraction of the economy for at least a quarter and possibly longer, as consumer spending is expected to almost certainly decrease.
Today's increase is just the first of a 2-step tax increase, with a further increase to 10% planned for October 2015. This is not a guaranteed increase and Prime Minister Abe's government has said that the next increase will depend on having the correct economic conditions in place before it happens. But many people fear fiscal deterioration may occur due to the first tax hike and there is uncertainty about what will happen next year.
Photo by Huffington Post