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LIST  December 2013

LIST December 2013

Subject:

Re: Kinmont] New (FY2014) government budget

From:

Japan Forum Member <[log in to unmask]>

Reply-To:

NBR's Japan Forum <[log in to unmask]>

Date:

Fri, 27 Dec 2013 15:49:15 +0900

Content-Type:

text/plain

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Parts/Attachments

text/plain (21 lines)

Mr Uleman raises a very important point. 

Just as the MOF chooses to characterize debt amortization costs as debt service costs in order to inflate the government's interest bill from under 10 trillion into a 'debt service cost' of over 23 trillion, so it is hard at work to present budget figures in a 'convenient' way.

However, recently it appears to have been too clever by half. In order to characterize the increase the consumption tax as 'necessary' it 'low-balled' its estimate of tax revenues for 2013.

The tax increase has been agreed. But the original estimate of revenue for 2013 has been exceeded comfortably, probably by around 10 per cent, a number not significantly different from the amount of tax the increase in the consumption tax is alleged to be likely to deliver. This upside 'surprise' is what allows a supplementary budget (of a 'face value' of 5 trillion) without any increase in targeted bond issuance. This picture shows that the rise in the consumption tax is wholly unnecessary, a ghastly unforced error.

The test comes next year. On natural settings an expanding economy could, without difficulty, deliver 50 trillion of revenue. My estimate is that it would also deliver lower than budgeted expenditures because a better economy via a better labour market delivers higher social security revenue and a lower social security deficit to be found out of the central government's resources.

However, the increase in the consumption tax in 1997 was associated with a fall in total tax revenue, because it helped slow the economy so far - and so fast- that it cut all other forms of tax revenue by more than it raised consumption tax takings.

In its wisdom, the MOF seems to have repeated its error. On the other hand, perhaps the degree to which it is wrong is now sufficiently revealed in the nonsense it has made of its own estimates. Yet the tax increase will crash the economy next Spring (unless fortuitously bailed out by the rest of the world). One hopes that only a short period will be required in 2014 before this foolishness is neutralized. After all, the MOF will not be able easily to argue that ' there is no money', because it has already said there is.....

It is an index of the lack of sophisticated economic attention that these questions receive in the MOF that, taking a leaf out of Mrs Thatcher's book, the national budget is presented side by side with an analogue as if it were a household budget in its booklet explaining Japan's fiscal condition.

AK

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