2/14/2005

Well suicide is part of the Japanese culture. The last time the national sales tax was increased (+20%) in the early 90s, there was a recession that lasted for years—actually the Japanese economy never recovered. This new increase ought to put the final nail in the coffin.

Bloomberg: Japan’s Planned Tax Increases Raise Concern of Recession —-Japanese income taxes aren’t going up until next year, and alarm bells are already ringing for the world’s second-largest economy. The increases, including the phasing out of an income tax rebate and a possible sales-tax increase, are designed to reduce the world’s largest public debt and to cover rising pension and welfare costs as Japan’s population grows older…”The danger is that it can sharply reduce the outlook for the economy,” says Rupkey. “The last time Japan took steps to reduce its public debt, the prescription nearly killed the patient.”…more…

The reason for these taxes is that Japan’s indebtness has risen to more than 160 percent of gross domestic product, which makes it much higher than that of the US or any other developed country. Japan’s only saving grace is that its government debt is owed to Japanese–it is not foreign debt.