Posts Tagged ‘disposable income’

Boomer boom: Businesses tapping consumption where they can find it

Friday, July 20th, 2012

It’s 10 a.m. Do you know where your grandmother is?

In July, the Bank of Japan released the results of its quarterly tankan survey of business sentiment for April-June. The most notable, and hardly surprising, result was the drop in confidence among major manufacturers. Less was said about the fact that domestic demand and individual consumption appear to be stabilizing. The numbers get even more encouraging when you look at specific industries.

In the tankan, an index of “0″ means no change in sentiment, with minus numbers indicating a loss of confidence and positive numbers a gain in confidence. The index for hotels and restaurants was +3, the first positive rise in five years, and a substantial one. Even more impressive was the index for “individual services,” such as travel agents, a category launched in 2004. The most recent tankan showed an index of +25. These numbers are at once heartening and baffling. Average income did not rise during the same period, which means consumption shouldn’t have risen, so why the increase in confidence?

The report’s authors credit these hopeful signs to people over 60, and smaller businesses’ resourcefulness in tapping this demographic. A recent article in Tokyo Shimbun profiled an izakaya (drinking establishment) chain called Hokkaido, which has an outlet in Kokubunji, Tokyo, that offers a special hiru enkai (daytime party) plan: If each member of a party orders at least ¥3,500 in dishes, then the party can drink as much as they like without paying extra.

Continue reading about senior citizen consumers →

Consumption tax increase: Fairness is in the eye of the beholder

Monday, April 9th, 2012

The Japan Communist Party opposes the proposed consumption tax increase

Ever since Yoshihiko Noda became prime minister last summer he has been staking his political career on approval for an increase of the consumption tax as a means of bringing the national debt under control. In the process he needs to convince everyone that it is the fairest tax there is. His one-note tone of self-sacrifice is starting to make people wonder, though. Last year a majority of citizens said they’d go along with a tax increase, but lately that number has dropped significantly. On April 2, the Mainichi Shimbun published the results of a phone survey that found 60 percent of respondents opposed any increase, a 2 percentage point increase from a month earlier.

So is it fair? The research institute of Daiichi Life Insurance studied the matter and found that a household of four (married couple, two children) with an income of between ¥4 million and ¥5 million would pay out ¥60,000 more a year in consumption tax if the rate went up to 8 percent, which, according to Noda’s current proposal, would happen in 2014. Then, when a second boost pushes the rate to 10 percent in 2015, this household will pay out ¥100,000 more than it does now.

In principle, the more money you make, the more you consume and thus the more you pay. And this is true to a certain extent. Daiichi Research found that a family of four making ¥8 million a year will pay out about ¥90,000 more per year when the tax goes up to 8 percent, and ¥150,000 more when it increases to 10 percent. So the gap between the lower and higher income groups at 8 percent is ¥30,000 and the gap at 10 percent is ¥50,000.

However, where the change will really be felt is in terms of disposable income, since starting in 2013 income taxes will also increase in order to pay for reconstruction of the disaster-hit Tohoku region. Though there will be deductions and exclusions that can make each taxpayer’s situation different, Daiichi found that, compared to 2011, taking all these new taxes into consideration the household that makes less than ¥5 million a year will have ¥310,000 less disposable income a year when the 10 percent consumption tax kicks in in 2015. The ¥8 million household will have ¥410,000 less in disposable income. Though the richer household makes twice as much money, it loses only 5 percent in terms of disposable income with the increase, while the poorer household loses almost 8 percent in terms of disposable income.

The consumption tax covers everything consumed, including food and other necessities. Consequently, the burden weighs more heavily on lower income households than it does on richer ones, since basic essentials are assumed to be about the same for everyone regardless of income. That means there is less money to spend on non-essential items and, presumably, lower income households won’t. Retailers and other commercial enterprises will have to compete more aggressively for upper income customers because those at the other end of the spectrum won’t be making as many purchases in order to make ends meet.

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