boosting private consumption in japan

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

BOOSTING PRIVATE CONSUMPTION IN JAPAN

Presented by Alessandro Scalisi

Japan: Selected IssuesIMF Country Report No.10/212

(July 2010)

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

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






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






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






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






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






JAPAN2011 ARTICLE CONSULTATION2011 SELECTED ISSUESLABOR POLICIES BOOST EMPLOYMENT AFTER THE EARTHQUAKE

Presented by Miki 　 Gouukon

A. INTRODUCTION

The Great East Japan earthquak

e

impact on

1.Labor

markets in the

region

2.Nationwid

e






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.






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






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






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






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






• BOOSTING OVERALLEMPLOYMENT

Presented by Christine Tsai

• CONCLUSION

BOOSTING OVERALL EMPLOYMENT

Young

Female

Elderly

USA

JAPAN

☆Japan is growing older faster than anywhere else in the world!






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






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






Difference between Male and Female participation rates nearly 25% Female labor participation (FLP) rates are low

Young

Female

Elderly

FEMALE EMPLOYMENT :

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).






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).






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






ELDERLY EMPLOYMENT :

Young

Female

Elderly






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






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.






WHY RAISING THE CONSUMPTION TAX (VAT) IN JAPAN

By Eiichiro Takinami

From the IMF Staff Discussion Note (June 16, 2011)

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)

WEAK TAX REVENUE

↑decline in tax revenue

↓tax revenue 17% of GDP is one of the lowest.

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.

COMPARISON OF TAX REVENUES

Lower personal income tax and consumption tax compared with other countries.

Because of the aging society more spending > income

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

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

5% VAT TAX IS ONE OF THE LOWEST

European average is 20%

Japan 1989 : 3% 1997: 5% 201X: 15%?

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

RAISING THE CONSUMPTION TAX IN JAPAN

Presented by Nicholas Rutzen

Japan: Selected IssuesIMF Country Report No.10/212

(July 2010)

THE FOUR S’S

Sooner rather than later

Stepwise

Sustained

Simple






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.






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.






SUSTAINED






• 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.

SIMPLE






• 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.

boosting private consumption in japan

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