boosting private consumption in japan
TRANSCRIPT
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I. Boosting Private Consumption in Japan
(Presented by Alessandro Scalisi )
II. Labor Policies to Boost Employment after the Earthquake
Introduction & Supporting Near-Term Employment (Presented by Gouukon Miki ) Boosting Overall Employment & Conclusions (Presented by Christine Tsai)
III. Raising the Consumption Tax in Japan (Presented by Nicholas Rutzen & 瀧波 栄一郎 )
Jan 12 ’12
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BOOSTING PRIVATE CONSUMPTION IN JAPAN
Presented by Alessandro Scalisi
Japan: Selected IssuesIMF Country Report No.10/212
(July 2010)
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PRESENTATION PLAN
1. Introduction2.Private Consumption in Japan: the
Current Situation3.The Drivers of Private Consumption:
Causes of the Current Situation4.Suggested Policies to Revive
Consumption
Labor Policies Gouukon Miki
Boosting Private Consumption Alessandro Scalisi
Labor Policies Christine Tsai
The Four S’sNicholas Rutzen
Why the VAT?瀧波 栄一郎
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1. INTRODUCTION
Private consumption is the largest component in GDP (≈ 60%)
In Japan lower than G7 average Situation caused by stagnation of
disposable household income Recommended policies to counter the
problem: boost wage growth, diversify portfolio, improve access to credit and strenghten social security
Labor Policies Gouukon Miki
Boosting Private Consumption Alessandro Scalisi
Labor Policies Christine Tsai
The Four S’sNicholas Rutzen
Why the VAT?瀧波 栄一郎
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2. PRIVATE CONSUMPTION IN JAPAN: THE CURRENT SITUATION
≅56% of GDP, 4% lower than the G7 average, shrinking after 2002
Private consumption level tracks the household disposable income
Labor Policies Gouukon Miki
Boosting Private Consumption Alessandro Scalisi
Labor Policies Christine Tsai
The Four S’sNicholas Rutzen
Why the VAT?瀧波 栄一郎
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3. THE DRIVERS OF PRIVATE CONSUMPTION: CAUSES OF THE CURRENT SITUATION
A. Stagnation of wagesi. Productivity gap between the service
and manifacturing sectorii. Increasing number of non-regular
workers B. Decline of property income
i. Households own low share of risky assets because of institutional, market-related and social reasons
ii. Low debt and equity financing Because of small consumer credit and lack of reverse home mortgages
Labor Policies Gouukon Miki
Boosting Private Consumption Alessandro Scalisi
Labor Policies Christine Tsai
The Four S’sNicholas Rutzen
Why the VAT?瀧波 栄一郎
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4.1 SUGGESTED POLICIES TO REVIVE CONSUMPTION Boost wages growth
i. Reforms aiming at increasing the service sector productivity
ii. Increase labor flexibility
Increase returns on savingsi. Deregulations and decrease of cross-
shareholdingii. Incentives for non-deposit financial
assets holders
Labor Policies Gouukon Miki
Boosting Private Consumption Alessandro Scalisi
Labor Policies Christine Tsai
The Four S’sNicholas Rutzen
Why the VAT?瀧波 栄一郎
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4.2 SUGGESTED POLICIES TO REVIVE CONSUMPTION Improve access to credit and equity
financingi. Greater sharing of credit informationii. Provide with reverse home mortgages
Increase social security
Labor Policies Gouukon Miki
Boosting Private Consumption Alessandro Scalisi
Labor Policies Christine Tsai
The Four S’sNicholas Rutzen
Why the VAT?瀧波 栄一郎
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JAPAN2011 ARTICLE CONSULTATION2011 SELECTED ISSUESLABOR POLICIES BOOST EMPLOYMENT AFTER THE EARTHQUAKE
Presented by Miki Gouukon
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A. INTRODUCTION
The Great East Japan earthquak
e
impact on
1.Labor
markets in the
region
2.Nationwid
e
Labor Policies Gouukon Miki
Boosting Private Consumption Alessandro Scalisi
Labor Policies Christine Tsai
The Four S’sNicholas Rutzen
Why the VAT?瀧波 栄一郎
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make
3.Reforms to raise its
growth potential
urge
nt
have to acceler
ate
W hy do we need reforms?Reasons :Weakening trend growth Finance fiscal reformsThe demands of the oldGrowth chances
4.From B section, this note discusses how labor policies can support employment in the aftermath of the earthquake and boost growth over medium term.
Labor Policies Gouukon Miki
Boosting Private Consumption Alessandro Scalisi
Labor Policies Christine Tsai
The Four S’sNicholas Rutzen
Why the VAT?瀧波 栄一郎
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5.the government’s been supporting employment nationwide.
the earthquak
e
oil shocks in1970s
the recent financial
crisis
B. SUPPORTING NEAR-TERM EMPLOYMENT
6.The employment adjustment
subsidy
7.eased the
eligibility criteria
5.The government’s provided temporary assistance to firms and workers in the affected
region
The Han-shin Awaji
Earthquake
Labor Policies Gouukon Miki
Boosting Private Consumption Alessandro Scalisi
Labor Policies Christine Tsai
The Four S’sNicholas Rutzen
Why the VAT?瀧波 栄一郎
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B. SUPPORTING NEAR-TERM EMPLOYMENT
Labor market
rigidities
Lifetime employment contracts
changing career is difficult
Specific measures: Job search and relocation assistance,
Incentives to hire and train low-wage workers given to employers, Job
training by the government8.Need to
reintegrating the unemployed
require measures that
aid with job
Labor Policies Gouukon Miki
Boosting Private Consumption Alessandro Scalisi
Labor Policies Christine Tsai
The Four S’sNicholas Rutzen
Why the VAT?瀧波 栄一郎
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B. SUPPORTING NEAR-TERM EMPLOYMENT9. The unemployment insurance system People
The governments Firms
In crisis, relaxed
eligibility
expanding coverage to
workers left
unemployed by the
circumstances and the
standard payment
period by 4mouths
tolerant of firms
that evade payments
non-regular workers remain at
risk of not being
registered under social security
Labor Policies Gouukon Miki
Boosting Private Consumption Alessandro Scalisi
Labor Policies Christine Tsai
The Four S’sNicholas Rutzen
Why the VAT?瀧波 栄一郎
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B. SUPPORTING NEAR-TERM EMPLOYMENTREVIVING LABOR MARKETS IN THE TOHOKU REGION
the regional
economies are
older, more
agrarian, less
educated, less
average income
11.Tohoku has
fewer economic
chances than
elsewhere in
Japan.
In terms of population and
GDP, city centers(like
TOKYO) account for nearly 2/3
outputs
Labor Policies Gouukon Miki
Boosting Private Consumption Alessandro Scalisi
Labor Policies Christine Tsai
The Four S’sNicholas Rutzen
Why the VAT?瀧波 栄一郎
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• BOOSTING OVERALLEMPLOYMENT
Presented by Christine Tsai
• CONCLUSION
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BOOSTING OVERALL EMPLOYMENT
Young
Female
Elderly
USA
JAPAN
☆Japan is growing older faster than anywhere else in the world!
Labor Policies Gouukon Miki
Boosting Private Consumption Alessandro Scalisi
Labor Policies Christine Tsai
The Four S’sNicholas Rutzen
Why the VAT?瀧波 栄一郎
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YOUNG EMPLOYMENT :
Because most labor mkt decisions in JP made from college, university or trade schoolProblem1. Lifetime employment guarantee 2. Many inequities exist in the current employment
systemSolution A New Labor Contract for New Generation!
Young
Female
Elderly
Labor Policies Gouukon Miki
Boosting Private Consumption Alessandro Scalisi
Labor Policies Christine Tsai
The Four S’sNicholas Rutzen
Why the VAT?瀧波 栄一郎
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YOUNG EMPLOYMENT :
Young
Female
Elderly
Solution Creating a more flexible and equal
labor market overall to reform !
The number of available lifetime
employment contracts
Young workers in non-regularpositions
Labor Policies Gouukon Miki
Boosting Private Consumption Alessandro Scalisi
Labor Policies Christine Tsai
The Four S’sNicholas Rutzen
Why the VAT?瀧波 栄一郎
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Difference between Male and Female participation rates nearly 25% Female labor participation (FLP) rates are low
Young
Female
Elderly
FEMALE EMPLOYMENT :
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FEMALE EMPLOYMENT
Young
Female
Elderly
One obstacle to higher FLP rates is the high drop-out rate of women from thelabor force following child birth (Figure IV.2).
Labor Policies Gouukon Miki
Boosting Private Consumption Alessandro Scalisi
Labor Policies Christine Tsai
The Four S’sNicholas Rutzen
Why the VAT?瀧波 栄一郎
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FEMALE EMPLOYMENT :
Young
Female
Elderly
One obstacle to higher FLP rates
is the high drop-out rate of women from thelabor force following child birth (Figure IV.2).
Labor Policies Gouukon Miki
Boosting Private Consumption Alessandro Scalisi
Labor Policies Christine Tsai
The Four S’sNicholas Rutzen
Why the VAT?瀧波 栄一郎
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Providing support for working mothers may
1. Help reduce this disparity in female labor participation
2. Assist more female employees to become future managers
FEMALE EMPLOYMENT :
Young
Female
Elderly
Labor Policies Gouukon Miki
Boosting Private Consumption Alessandro Scalisi
Labor Policies Christine Tsai
The Four S’sNicholas Rutzen
Why the VAT?瀧波 栄一郎
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ELDERLY EMPLOYMENT :
Young
Female
Elderly
Labor Policies Gouukon Miki
Boosting Private Consumption Alessandro Scalisi
Labor Policies Christine Tsai
The Four S’sNicholas Rutzen
Why the VAT?瀧波 栄一郎
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Across the OECD life expectancy has risen faster than the average retirement age
ELDERLY EMPLOYMENT
Young
Female
Elderly
Solution
Raising the Retirement Agewill help • increase labor participation • reduce pressure on pension
systems
Labor Policies Gouukon Miki
Boosting Private Consumption Alessandro Scalisi
Labor Policies Christine Tsai
The Four S’sNicholas Rutzen
Why the VAT?瀧波 栄一郎
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CONCLUSION
The earthquake has had an important impact on labor markets at the national level.
The earthquake provides, however, also an opportunity to accelerate reforms to raise growth.
Labor Policies Gouukon Miki
Boosting Private Consumption Alessandro Scalisi
Labor Policies Christine Tsai
The Four S’sNicholas Rutzen
Why the VAT?瀧波 栄一郎
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WHY RAISING THE CONSUMPTION TAX (VAT) IN JAPAN
By Eiichiro Takinami
From the IMF Staff Discussion Note (June 16, 2011)
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EXPENDITURES
Gross Debt has tripled in past two decades (200% of GDP)
Social security spending has risen 60% over the past 15 years.
(rapid population aging)
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WEAK TAX REVENUE
↑decline in tax revenue
↓tax revenue 17% of GDP is one of the lowest.
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CAN WE SAVE SPENDING IN OTHER AREAS?
Non-social Security spending is actually one of the lowest.
Not much room to cut costs in other areas.
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COMPARISON OF TAX REVENUES
Lower personal income tax and consumption tax compared with other countries.
Because of the aging society more spending > income
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WHY VAT (CONSUMPTION) TAX?
1. Stable Source
2. Equally applied to everyone
3. doesn’t Distort house hold savings decision as much
Ex: capital income tax
Less damaging for economic growth compared with
Personal Income and Corporate Tax
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STABLE SOURCE IN AGING SOCIETY
Shortage of labor Aging society= (spending > Income) Private consumption growth is 0.5% faster
over the last 10 years than labor income
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5% VAT TAX IS ONE OF THE LOWEST
European average is 20%
Japan 1989 : 3% 1997: 5% 201X: 15%?
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RAISING THE VAT TO SECURE FISCAL SUSTAINABILITY
Need to have “down ward path” for Japan’s debt to GDP ratio.
Gradual increase in VAT rate to 15% starting 2012
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RAISING THE CONSUMPTION TAX IN JAPAN
Presented by Nicholas Rutzen
Japan: Selected IssuesIMF Country Report No.10/212
(July 2010)
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THE FOUR S’S
Sooner rather than later
Stepwise
Sustained
Simple
The Four S’sNicholas Rutzen
Why the VAT?瀧波 栄一郎
Labor Policies Gouukon Miki
Boosting Private Consumption Alessandro Scalisi
Labor Policies Christine Tsai
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SOONER RATHER THAN LATER
• To take advantage of the fiscal recovery expected in 2012 and to strengthen credibility of the fiscal adjustment, the VAT tax increase should begin as soon as possible.
The Four S’sNicholas Rutzen
Why the VAT?瀧波 栄一郎
Labor Policies Gouukon Miki
Boosting Private Consumption Alessandro Scalisi
Labor Policies Christine Tsai
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STEPWISE
• The VAT should be increased in steps over 5 years at 1 ¾ percentage points per year rather than over 2 years at 3 1/3 percentage points per year.
The Four S’sNicholas Rutzen
Why the VAT?瀧波 栄一郎
Labor Policies Gouukon Miki
Boosting Private Consumption Alessandro Scalisi
Labor Policies Christine Tsai
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SUSTAINED
The Four S’sNicholas Rutzen
Why the VAT?瀧波 栄一郎
Labor Policies Gouukon Miki
Boosting Private Consumption Alessandro Scalisi
Labor Policies Christine Tsai
• Rather than implementing a temporary increase in the VAT as some have suggested, the increase should be sustained as the problems in the Japanese economy will only get worse over time.
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SIMPLE
The Four S’sNicholas Rutzen
Why the VAT?瀧波 栄一郎
Labor Policies Gouukon Miki
Boosting Private Consumption Alessandro Scalisi
Labor Policies Christine Tsai
• A simple, uniform increase in the VAT is a much better solution that other proposed plans such as increases based on income level or increases on specific products, though it can be further improved with targeted transfers to low-income households being implemented.