Cheered on by the OECD, Japan Announces Higher VAT Rate to Enable Bigger Government

If you have any long-term Japanese investments, sell them soon.

How do you say “Barack” in Japanese?

In part, that’s because the Japanese Prime Minister announced another Keynesian spending binge earlier this year – even though several so-called stimulus plans in Japan have flopped over the past two decades (Keynesian economics doesn’t work anywhere, but that’s a topic for another day).

Adding to the burden of government spending is not exactly prudent behavior for a nation that already has the highest level of debt among all industrialized countries.

But the main reason I’m so pessimistic about Japan is that the government has decided to deal with the problem of runaway government spending by imposing  permanently higher taxes on the private sector.

I’m not kidding. Let’s look at parts of a recent Reuters report.

Japan’s Prime Minister Shinzo Abe will…raise the national sales tax to 8 percent in April from 5 percent, a final draft of the government economic plan, seen by Reuters, shows.

Japan’s government isn’t even pretending to restrain spending!

And to make a bad situation even worse, some of the money will be used for yet another faux stimulus package.

Abe ordered his government to compile the stimulus package to be announced on Tuesday. It features public-works spending for the 2020 Tokyo Olympics.

The main problem, though, is that Japan’s real fiscal problem is an ever-increasing burden of government spending. The tax increase won’t solve that problem. Indeed, it will give politicians an excuse to postpone much-need reforms.

Surprisingly, the Reuters report acknowledges these problems.

The government has done little to rein in spending…, so some critics doubt Tuesday’s move will be enough to get Japan on track to achieve its goal of halving the budget deficit – excluding debt service and income from debt sales – by the fiscal year to March 2016 and balance it five years later. …any improvement in government revenue from the tax increase is likely to be quickly overwhelmed by expenditures in a country where a rapidly ageing society and generous public services are blowing an ever-bigger hole in the budget.

Time to “decisively” raise taxes!

So why is the Prime Minister doing something that won’t work? Apparently this shows he is decisive. This is not a joke.

…pressing ahead with the tax hike bolsters the image Abe has sought to foster of a decisive leader, withstanding opposition from his advisers and some of his own party.

Gee, isn’t it wonderful that Japan’s Prime Minister decisively wants to do the wrong thing and decisively put his nation deeper in a ditch.

While rational people are puzzled by the Japanese government’s self-defeating decision to raise taxes, there is one group that is cheering. Here are some excerpts from Tax-News.com about the head bureaucrat from the OECD applauding the greed of Japan’s political class.

The Secretary General of the Organization for Economic Cooperation and Development Angel Gurria has warmly welcomed the announcement from Japanese Prime Minister Shinzo Abe that the nation will raise its consumption tax from its current five percent levy to eight percent from April 2014. …”As Abe himself has noted, this increase is essential to maintain confidence in Japan and establish a social security system that is sustainable for future generations. I congratulate Prime Minister Abe for this important step and also encourage the government to complete the second hike in the consumption tax rate to 10 percent in 2015.”

So the OECD wants a hike in the VAT now…and another one in just two years. I’m sure Japanese taxpayers are overjoyed to be subsidizing a bunch of bureaucrats in Paris (who get tax-free salaries!) who urge more taxes on other people.

But, to be fair, the OECD wants higher taxes for everybody – including more Obama-style class-warfare taxes in America. The bureaucrats even argue that VATs are good for growth and job creation!

My view, for what it’s worth, is that this is another piece of evidence showing that the VAT is a money machine for big government. Not just in Japan, but also in Europe.

And the same would be true in America. This video explains further.

P.S. Here are some examples of how the Japanese government wastes money, though regulation of coffee enemas is my favorite example of government stupidity from Japan.

P.P.S. Click here, here, and here to enjoy some very good cartoons on the VAT.