Prime Minister in Japan's Worst Period
Prime Minister in Japan's Worst Period
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Prime Minister Yoshihide Suga has decided not to run for the LDP presidency. This means that the prime minister of Japan will be changed.
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"For the past year, I have been doing my utmost to tackle the various problems facing this country, especially the Corona pandemic." On September 3, after announcing his decision at a party executive meeting, the prime minister stressed to reporters at the prime minister's official residence.
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In the final phase of his decision, the Prime Minister was said to meet with Environment Minister Shinjiro Koizumi for four consecutive days. Mr. Koizumi, who said he had advised him to step down, tearfully said, " Though Prime Minister Suga was constantly criticized, no other administration has done so much work and produced such results in one year."
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Could it be that Prime Minister Suga's utmost efforts and results mean that he has "advanced decarbonization and digital administration, which have lagged behind the rest of the world, as his signature policies"?
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Or is it that he has "made progress in vaccination, which has lagged behind other industrialized countries"?
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Or is it the fact that "he has managed to keep the economy moving, including hosting the Olympic and Paralympic Games, while dealing with governors who insisted on shutting down the economy through lockdowns and other measures to combat the Covid-19”?
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Nevertheless, it cannot be denied that the Japanese people did not appreciate those achievements and the decline in the approval rating led to the decision to step down.
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However, it is also true that this administration has spent all its time cleaning up the mess of previous administrations which made "lagged behind the rest of the world", "lagged behind other developed countries", "stopped the economy", "decided to hold the Olympic and Paralympic Games during the Corona pandemic" and so on.
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I have been pointing this out since the birth of Prime Minister Suga. Here I quote directly from the preface of my book, " What has made Japan’s economy stagnant for more than 30 years?”
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(Quote from here, to URL)
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On September 16, 2020, Yoshihide Suga, the 26th President of the Liberal Democratic Party, became the 99th Prime Minister of Japan. During his campaign for the LDP presidency, Mr. Suga had said, "If we think about the future, we will have to raise the consumption tax after thorough administrative reform”. He appealed that a consumption tax hike was necessary to finance social security in the face of the declining birthrate and aging population.
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The same is true for the other two candidates running for the presidency, which means that a consumption tax hike would have been the default for any prime minister of Japan. In fact, his predecessor, former Prime Minister Shinzo Abe, raised the consumption tax rate twice during his tenure.
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Nevertheless, as the previous chart 00 clearly shows, tax revenues peaked the year after the introduction of the consumption tax, and the economy peaked in FY 1997 when the tax rate was raised to 5%, as will be discussed later. The sluggish economy and the decline in tax revenues are the main reasons for ruining the social security system. As you can see from the last chapter, "The Social Security System on the Eve of Collapse," there is no prospect that Japan's social security system, which supports most of the population, can be sustained if this goes on.
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What's wrong with the consumption tax? Government budget is financed by the taxes on the people’s activity. The government builds infrastructure, creates an environment where business can be conducted safely, and collects taxes on the share of wealth created by the people through production. At this time, income tax and corporate tax are collected according to the results of production.
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The consumption tax, on the other hand, is like an entry fee charging 10% on seeds and seedlings for the production, instead of waiting for the harvest in the fall. This will cause production to stagnate because some of the source of the harvest has been taken away, which in turn will reduce tax revenue.
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The tax system is the foundation of a country. It is useless to fix leaks and windbreaks through administrative reform when the foundation is rotten. Therefore, I tried to use many charts and tables so that the readers can understand what is going on just by looking at the charts. Unless more people do understand the consumption tax, Japan will not improve.
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Mr. Abe, the former prime minister, was in office for 2,822 consecutive days and a total of 3,188 days when combined with his first term, both of which are the longest in history. This means that if the Japanese economy has been lackluster for the past couple of decades, he is the most responsible for it in history. Nevertheless, the economic recovery period under Abenomics lasted 71 months, just two months shy of the 73 months of the "Izanami boom" (February 2002 to February 2008), which was considered the longest postwar expansion.
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However, both the Izanami boom and Abenomics just took time to recover slowly from their depressions, and did not leave behind anything to be proud of. On the contrary, they have left behind a number of big problems for Japan in the future.
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Prime Minister Suga has inherited such issues from his legendary predecessor. Let's take a look at some of the issues that came to mind.
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1.????????Huge accumulated budget deficit
2.???????Huge outstanding public debt
3.???????A tax system that cannot expect to increase tax revenues
4.???????A social security system that will virtually collapse if the current situation continues
5.???????Challenge the declining birthrate and aging population
6.???????Monetary policy in a state of near-limitless easing (the remaining policies are neutral or tightening)
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7.???????Disappearance of short-term interest rate products
8.???????The government bond market has lost its function
9.???????BOJ stock holdings exceed well over 30 trillion yen
10.??????Economic downturn ruined by hollowing out of industries, reliance on inbound tourism, the consumption tax hike, and countermeasures against Corona pandemic
11.??????Era of closing rush of business
12.??????The widening gap between the rich and the poor
13.??????Diplomacy in anticipation of a full-scale confrontation between the U.S. and China
14.??????Life with Covid-19 and future measures against other epidemics
15.??????Countermeasures against global warming, which has begun to rage
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Each of these issues is so big that it's rather hard to stop talking about them. I can understand why Mr. Abe, who had been confronting these issues, thought of resigning on the day he broke the record for consecutive terms in office. How could he possibly improve the problems that he himself had worsened over 2,822 days, or 3,188 days if we include his first term, in the short remainder of his term? In this sense, the position of Prime Minister of Japan is a "key position" that should have been taken over by Mr. Suga, who had supported the previous administration as Chief Cabinet Secretary.
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The main theme of this book is that the consumption tax hike, which is supposed to be the source of funding for social security expenses, has instead increased social security expenses through the economic downturn caused by the tax hike. At the same time, it has reduced total tax revenue, which is the source of funding. This is the main cause of the huge accumulated budget deficit and the huge public debt, which threatens the existence of the social security system.
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I also see that through the economic downturn, it has weakened the competitiveness of companies, worsened the working environment, and led to a widening gap between the rich and the poor.
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It also points out that in order to stimulate the deteriorating economy, BOJ has introduced negative interest rate policy which has extremely harmful side effects, made over-issuance of currency and fiscal financing?that will ruin the country's credibility in the future, and stock ownership of private companies by the central bank. Thus, Japan's monetary policy has lost its function eventually.
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After analyzing these charts and tables, I have come to the conclusion that a country can prosper or perish depending on its tax system. Since FY 1989, Japan has had a tax system that cannot increase tax revenue. Based on the chart data, I will explain how this has created most of the 15 issues listed above.
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This strongly suggests that Japan can return to decent economic growth if only the tax system is restored to what it was during the high growth and bubble periods. Specifically, the consumption tax should be abolished, the progressive income tax rate should be increased, and the corporate tax rate should be raised. Without a return to a tax system that generates more tax revenue, Japan's social security system will collapse.
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The maintenance of the social security system is everyone's matter. Everyone is supposed to be a recipient of a pension in the future. Everyone is using the health insurance system. No one can say for sure that he or she will not be covered by unemployment insurance. Even if you never rely on such benefits, you are paying social insurance premiums at the moment, and if things continue as they are now, your burden of insurance premiums will inevitably rise. The day is coming when the private sector will be forced to fill the government's massive debt.
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I hope this book will help you the readers to understand the Japanese system.
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Reference: What has made Japan’s economy stagnant for more than 30 years?:
How to protect the pension and medical care systems (Arata Yaguchi: Kindle Edition)
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A large part of the problem over the couple of past decades, including lack of own vaccine development and the maintenance of the medical system, has come from shortage of capital, as risk management requires a reasonably sufficient amount of money. How ridiculous is it that the tax revenue in 1988 was 50.8 trillion yen and the average tax revenue from 1989 to 2019, after the consumption tax was added, was 50.7 trillion yen?
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Consumption tax and social insurance premiums are taxes taken from the general public who are not necessarily rich. (Note: The OECD defines social insurance premiums as taxes as well). Japan has been killing consumer spending for the past 30 years by raising taxes on the general public.
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As a result, the economy stagnated and tax revenues did not increase. Furthermore, by lowering the progressive income tax rate taken from the very rich and lowering the corporate tax rate, the tax system was changed so that tax revenues would not increase even if the economy improved.
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Unless this is changed, whoever becomes the next prime minister cannot be expected to achieve much, and may even lead to the end of his or her political career. In this sense, the next LDP president will be a key position that requires unprecedented commitment.
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The debt of the Japanese government continues to increase to the largest ever as a percentage of GDP. This debt, which is the highest in the world, is made possible by the assets of the Japanese people as collateral. The previous largest debt in history was during World War II, and that debt was "eliminated" by a massive tax hike followed by a blockade of people's deposits, hyperinflation, and a denomination from the old yen to the new yen.
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The only options for the next Prime Minister of Japan, who will be the 100th Prime Minister of Japan, or for several after that, are to "confiscate the people's assets" as it has done before, just to maintain the functioning of the government, or to change the tax system to one that will encourage economic growth and increase tax revenues.
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However, if the current tax system remains in place even after the confiscation of the people's assets, both the people and the country will simply become poorer, and future growth will become increasingly unlikely. In other words, the only way to save Japan is to reform the tax system by eliminating the consumption tax, expanding the progressive income tax rate, and raising the corporate tax rate.
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Unfortunately, only a handful of people, 766, have a right to vote for the?LDP presidency. If any of the readers have connections to the candidates or the voters for the presidency, or have access to them in some way, please send this article to them. Otherwise, it is highly likely that the next prime minister will be unable to produce any results and will "step out" with Japan in a worse state.
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I would like all Japanese people who share my interests as a person living in Japan, including candidates for the LDP presidency, to read this article to see if what I am saying is the delusion of a pessimist.