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MOSLER'S LAW: There is no financial crisis so deep that a sufficiently large tax cut or spending increase cannot deal with it.

Japan- Noda Pledges to Build Consensus on Doubling Japan Sales Tax

Posted by WARREN MOSLER on June 21st, 2011

You’d think they’d know better by now:

Noda Pledges to Build Consensus on Doubling Japan Sales Tax

By Toru Fujioka

June 21 (Bloomberg) — Japanese Finance Minister Yoshihiko Noda said he wants to work on building a consensus to double the nation’s 5 percent sales tax as his country tries to contain the largest debt burden in the world.

Government and ruling party officials have decided to postpone approving a panel recommendation to raise the consumption tax to 10 percent by fiscal 2015 to pay for social welfare, the Yomiuri newspaper reported today, without citing where it obtained the information.

“The issue is whether we can get approval for the core elements of our proposal,” Noda said at a press conference in Tokyo today, when asked whether the reference to doubling the sales tax could be removed to win approval for the recommendations. “We should make efforts to gain an understanding” for the recommendations, he said.

Prime Minister Naoto Kan, who chaired panel charged with examining social welfare, was scheduled to release a blueprint for tax policy this month to keep the budget sustainable.

Moody’s Investors Service, Standard & Poor’s and Fitch Ratings have all warned that Japan risks a downgrade in its credit grade if it fails to push through changes.

A record earthquake, nuclear crisis and political wrangling within Kan’s ruling Democratic Party of Japan have complicated his efforts to restore Japan’s fiscal health. The nation’s debt burden is about 200 percent of gross domestic product, a load that will come under more pressure as the population ages.

7 Responses to “Japan- Noda Pledges to Build Consensus on Doubling Japan Sales Tax”

  1. Art Says:

    “You’d think they’d know better by now”

    You’d think. I so want to believe in Japan, but their policymakers sure make it difficult.

    On a just barely related note, while calling for the Fed to tighten up because of his total misunderstanding of bank reserves etc, Allan Meltzer praises his body of work in Japan, where he was an honorary consultant (wonder if that involved a tidy honorarium?):

    http://finance.yahoo.com/blogs/daily-ticker/raise-rates-now-allan-meltzer-fed-great-mistake-181900423.html

    Reply

  2. Max Says:

    For some reason this reminds me of the scene in Airplane II with the machine of unknown function with lots of blinking lights.

    A: Those lights are blinking out of sequence.
    B: I see.
    A: What should we do?
    B: Make them blink in sequence.

    The budget deficit numbers are large. What should we do? Make the numbers smaller.

    Reply

  3. Ralph Musgrave Says:

    If Noda followed MMT logic, he wouldn’t raise the tax of course. That is, he’d let private sector net financial assets rise. But there is a slight problem with this logic in Japan, namely that Japanese criminals, the Yakuza, love banks with bulging reserves: they have a habit of “persuading” the relevant bankers to “lend” them money, which is never repaid.

    The West has an equivalent problem, namely that dim-wit bankers lend surplus funds to no-hopers: NINJA mortgages, etc. The latter problem is soluble via better bank regulation. The Yakuza problem is not so easily solved, though exactly how big a problem it is in the total scheme of things, I’m not sure.

    Reply

    Rodger Malcolm Mitchell Reply:

    @Ralph Musgrave, Are Japanese laws similar to ours, where bank lending limits are based on capital, not on reserves (because reserves are freely available from the Fed or from other banks)?

    If so, “bugling reserves” would be meaningless.

    Rodger Malcolm Mitchell

    Reply

    roger erickson Reply:

    @Rodger Malcolm Mitchell,
    Nevertheless, it’s a way for bankers to toot their own horns. :)

    Reply

    WARREN MOSLER Reply:

    yes

    Reply

    WARREN MOSLER Reply:

    not big enough to keep gdp growing where they want it

    Reply

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