The Japanese Sales Tax Hike Verdict Is In: Disaster As Sales Plunge 25% (Are you watching, America?)

Zero Hedge ^ | 04/09/2014 | Tyler Durden

[SeekAndFind]

On April 1, as was widely known, Japan raised its sales tax from 5% to 8% - a move many dread could unleash a recession as happened the last time Japan hiked a consumption tax in 1997. A week later the verdict on just how much consumption was frontloaded ahead of the hike is in, as we get the first sales data on the ground. The result is, in short, a disaster: overnight the Nikkei reported that Japanese department store Takashimaya’s revenue in April 1-7 period crashed 25%!

 We for one can't wait to see what Japan's Q2 GDP will be now that consumption has literally fallen off a cliff.

The Nikkei reports:

Retailers watched Japanese shoppers rush to stock up on all sorts of consumer goods ahead of the April 1 sales tax rise, and are now bracing for a corresponding dip in demand. But Takashimaya says it carefully assessed the tax hike's likely impact and is moving to slash costs by around 10 billion yen to ensure profit growth for the year through February 2015.

 

[T]he company is tempering its outlook for the near future. "Insofar as big-ticket products were in high demand before the tax rise, it's possible their sales will fall more than presumed," President Shigeru Kimoto said at a news conference Tuesday. 

 

Indeed, demand has recoiled since the start of this month, with department store sales tumbling 25% on the year during the first week of April.

 

Takashimaya estimates that the combined impact of the drop-off in demand and the tax increase itself will lower fiscal 2014 operating revenue -- equivalent to sales -- by about 20 billion yen and operating profit by about 5 billion yen. As the steady performance of such segments as the Singapore unit and a subsidiary that operates shopping centers will be insufficient to offset this, operating revenue is expected to decline slightly to 900 billion yen.

Luckily, Takashimaya has a plan to deal with this plunge in revenues:

Takashimaya aims to weather these headwinds with sizeable cost cuts, targeting rents as one area for savings. Since the start of the year, the company has spent nearly 120 billion yen to acquire properties that house a number of its department stores. The move is expected to save just over 3 billion yen in rent annually.

 

The corporation will cut back on other costs, including personnel expenditures and advertising fees as well, aiming to save about 7.3 billion yen at its department stores and around 2 billion yen for its group companies.

In other words, the company is about to unleash a "rationalization" campaign, better known as wholesale firings. But, but, what happened to those wage hikes that Abe swore up and down were coming and are so critical for the absent third arrow of Abenomics to finally emerge. Or maybe instead of wages surging, they meant unemployment? Happens - it was lost in translation.

Finally, according to Nikkei, other retailers were also impacted with Parco April 1-7 same-store sales dropped 7%, Daiei sales fell 8-9%, FamilyMart -5%.

That's ok - they too have "cost-cutting" programs in place.

As for what happens to the Japanese economy, and stock market, next, here is a reminder from our article from last week: "What Happened The Last Time Japan Raised Its Consumption Tax?"

[Gay State Conservative]

Both Salem and Nashua New Hampshire,towns right on the Massachusetts border,have *huge* shopping malls.The parking lots of those shopping areas routinely feature 90% Massachusetts plates.Massachusetts has a 6.25% sales tax...New Hampshire's is 0.00%

[dfwgator]

Probably resulted in more tourism for Hawaii. Japanese love to come to Hawaii to shop.

[wayoverontheright]

The only way to increase sales taxes without this happening would be to accompany the increase with a simultaneous income tax decrease.

[from occupied ga]

would be to accompany the increase with a simultaneous income tax decrease.

One of the most admirable traits of the Japanese is a absolute detestation of income tax and an ongoing effort to avoid paying it by any means they can manage.

[BuffaloJack]

> Japan raised its sales tax from 5% to 8%.

Wow, I wish I only had to pay 8% sales tax. I live in the Totalitarian Dystopia of New York. My sales tax is 8.875% and it’s a killer.

[USFRIENDINVICTORIA]

Sorry, but I’m not buying this (too high a tax on credulity). Canada had a national consumption tax at 8%, without the drop in sales this article claims resulted in Japan. When it was lowered by a couple points, we also didn’t see a big jump in consumption. Same goes for Europe, and many other countries with consumption taxes.

High aggregate taxes are a concern — but, consumption taxes actually disrupt the economy less than income taxes.

[from occupied ga]

Probably resulted in more tourism for Hawaii. Japanese love to come to Hawaii to shop.

Hawaii is the only state where the alternative language signs are in Japanese rather than Spanish. Hawaii sales tax is 4% - 4.5%

[dfwgator]

If you go to the Ala Moana mall in Honolulu you’d think you were in downtown Tokyo.

[thackney]

The point was with an announced rise coming in the tax rate, many people bought in advance, particularily more expensive items. Over time it will likely level out. But a increase before the tax rate and a decrease immediately afterwards seems reasonable.

[MNnice]

The point is, you’re supposed to REPLACE the income tax with the consumption tax, not add it to the burden!

[USFRIENDINVICTORIA]

The facts, as you state them (and I think you’re probably right) belie the alarmist, misleading headline (what “disaster”?). Also, the article uses sales figures for a single department store, and attempts to extrapolate from there to the whole economy. Clearly, the author had a point to make, and pummeled the “facts” into submission, until they “supported” his point. This is the sort of propaganda-posing-as-reporting that we’ve come to expect from the leftist media. There’s no excuse for it.

[from occupied ga]

from occupied ga If you go to the Ala Moana mall in Honolulu you’d think you were in downtown Tokyo.

Been there (the mall not Tokyo) I know what you mean.

[thackney]

I agree. I suspect the result was a good year, followed by the current bad year, followed by average years there out.

Headlines are used to sell ads, not provide news.

[JSDude1]

Tell me are there ANY free market political parties in Japan? When even the “right wing” does this a nation is trouble.

[JSDude1]

And yet New Hampshire has a Democrat governor (after the failure that was the last one), and though the Repubs dominate the House (I don’t know about the state Senate or Executive whatever it’s called-basically they’re over the bureaucracy), they also have a Demo and a RINO US Senator and 2 Demos on the US House.

Good gosh, I have campaigned up there, and nice people, but that state has turned insane since at least 2006.

[The Great RJ]

You can’t repeal the Law of Demand...as prices increase the market will demand less. Happens in the US too. Minnesota raised cigarette taxes so that cigarettes cost 40-50% more than in surrounding states and Minnesotans within an hours drive of the state borders are buying their cigarettes in neighboring states. Not only are cigarette tax revenues less than predicted, Minnesota merchants in communities near the borders are see their business significantly decline as shoppers are not only buying their cigarettes in surrounding states but doing other shopping as well.

[DannyTN]

A sales tax is vulnerable to consumer psychology. Government revenues drop off during the very periods where you need government to intervene.

If Japan had seen a 3% hike in prices due to inflation, they would see some drop. But this level of dorp probably started as a consumer protest. They quit buying. But as soon as they do, everyone has to quit buying, because you didn’t make any sales last month. And now Japan has a full scale recession on their hands.

I think raising import tariffs and lowering individual and corporate income taxes are the way to go for America. It would restore American industry. Putting people back to work.

[DannyTN]

A sales tax is vulnerable to consumer psychology. Government revenues drop off during the very periods where you need government to intervene.

If Japan had seen a 3% hike in prices due to inflation, they would see some drop. But this level of dorp probably started as a consumer protest. They quit buying. But as soon as they do, everyone has to quit buying, because you didn’t make any sales last month. And now Japan has a full scale recession on their hands.

I think raising import tariffs and lowering individual and corporate income taxes are the way to go for America. It would restore American industry. Putting people back to work.

[Gay State Conservative]

In 2010 NH kicked both their Maoist Congresscritters out and replaced them with Republicans.As for the “RINO” Senator I put it to you that southerners like yourself cannot understand New England.Hell,*I* can just barely understand it and I've lived here all my life.I wouldn't be at all surprised if the state flips again,kicking out both their Commie Congresscritters and electing Scott Brown to the Senate.