Is “Low Productivity in Japan” an Excuse to Raise Taxes? Sustainability Scholar Takes a Swipe at Three Allegations in “New Capitalism

Bold” and “extraordinary” but with no “specifics” in sight

Prime Minister Fumio Kishida has announced that 2023 will be the year he will launch “new capitalism” in earnest.

Under the banner of “new capitalism,” Prime Minister Kishida claims to be reforming neoliberal economic policies and realizing a “virtuous cycle of growth and distribution,” but we do not know exactly what this means.

Last December, he suddenly announced a “tax hike to increase defense spending. However, in the end, the government decided to increase the total amount of defense spending to 43 trillion yen over the five-year period from FY2023 to FY2027 (1.5 times the amount of the previous five years), and in the name of covering the shortfall in financial resources, the ruling party has proposed “tax increases” on income tax, tobacco tax, and corporate tax beginning in FY2027. The ruling party’s policy is to “increase” income tax, cigarette tax, and corporate tax in order to make up for the shortfall.

Furthermore, on January 4, the government announced a “child allowance” and a “doubling of the budget for children,” without mentioning any financial resources.

The lack of specifics in the “bold” and “extraordinary” policies has been criticized by many as “just another tax hike” or “just a rehash of Abenomics.

The first suspicion: Is he trying to bust “small and medium-sized enterprises”?

So, what really is the “new capitalism” that Prime Minister Kishida is aiming for?

Sustainability scholar Kento Sasano, a member of the World Economic Forum (WEF) and the UN Principles for Responsible Investment (PRI), who leads a group of geniuses researching and developing new SDG/ESG data science technologies, points out that there are “three suspicions” regarding the “new capitalism” being promoted by the Kishida administration The first is that “small and medium-sized enterprises are being crushed by the government.

The first is that “they are trying to destroy small and medium-sized enterprises. What is the basis for this suspicion?

Most of the companies that have been hit really hard by Corona, such as restaurants and lodging, are small and medium-sized businesses.

The increase in the number of loss-making SMEs in Corona gives the impression that the government’s tax revenue will decrease, but according to the National Tax Agency’s “Results of the Sample Survey of Corporations” for fiscal 2019, 38% of the 2.47 million corporations pay taxes, and 62% of them do not.

The Ministry of Finance must have seen that the impact on tax revenues was limited because there are a reasonable number of companies that do not pay taxes, and many of the small and medium-sized companies hit by Corona were loss-making to begin with.

In other words, even though the deficit swelled due to Corona, there was not much impact in terms of tax revenue, given the reality that many small and medium-sized enterprises have been in the red and not paying taxes for some time. On the contrary, he says, the fact that tax revenues reached a record high also shows how amazing the performance of the K-shaped recovery group of large companies has been.

If that is the case, it is not surprising that the government, if it only considers tax revenue, would not mind if small and medium-sized enterprises went out of business.

Some may argue that small businesses that actually receive subsidies are useless and should be allowed to go out of business. Anyone with a little imagination should be able to understand how much goods and services that support our daily lives are supported by SMEs. ……

Another point he makes is the “consumption tax hike” speculation.

The consumption tax for FY2020 is 20.971 trillion yen, an increase of 2.6 trillion yen over the previous year, reaching the 20 trillion yen mark for the first time.

The income tax, corporate tax, and consumption tax are called the “three core taxes,” and the consumption tax topped the list for the first time. The explanation for this is simple: the increase in the consumption tax rate from 8% to 10% in October 2019 is having a real effect.

For example, something that costs 100 yen goes from 108 yen to 110 yen, and you might think, ‘That’s only 2 yen,’ but 8 yen to 10 yen is a 25% increase, and when you look at the overall scale of tax revenues, it has a huge effect.”