Monday, 17 November 2014

Japan's economy makes surprise fall into recession.......


From todays BBC report here,

"Japan's economy unexpectedly shrank for the second consecutive quarter, leaving the world's third largest economy in technical recession.

Gross domestic product (GDP) fell at an annualised 1.6% from July to September, compared with forecasts of a 2.1% rise

That followed a revised 7.3% contraction in the second quarter, which was the biggest fall since the March 2011 earthquake and tsunami.

Economists said the weak economic data could delay a sales tax rise."

As we speculated on this blog a couple of months ago, rises in sales taxes don't end up well. But for some reason mainstream economists think they are the least bad option.

Coincidentally, I was reading this piece by Mason Gaffney last night "Europe's fatal affair with VAT", which chimes in with what Mark has been banging on about on his blog for years.


Mark Wadsworth said...

Fair play though, their brainwashing does work ("it's a tax on consumption").

A few years ago I was talking to Dave Wetzel about what he thought was the worst tax and he resolutely and without hesitation said it was VAT, "it is a tax on labour" (I've heard more clued up Ukippers say the same).

I'd never really thought about VAT up til then, but once I'd looked into properly, I established he was and is completely right.

Further evidence: the 2008 recession in this country was not as bad as in other places because they reduced VAT slightly and increased Business Rates slightly.

Lola said...

You only have to look at the growth of the 'black' (as in the least 'intervened') economy to see that VAT is a disaster.

Lola said...

I don't know why anyone ever thought that VAT was anything else than a tax on labour - aka 'wealth creation'. It's in the bloody name of the sodding idea; Value Added Tax. Why the Hell would you tax 'wealth' or 'value added' rather than rent, say. It makes no sense whatsoever. Furthermore it's a tax on exchanges, just the thing you do not want in the exchange economy. So it taxes and therefore inhibits the two things you most want - wealth creation and exchange. Whoever thought up VAT needs a penis shoving in his / her ear and some sense fucking into him/her.

Mark Wadsworth said...

L, that's the bit that terrifies me.

Had they been clever and called it "General Consumption Tax" or something to mask their traces, fair enough. But they were totally brazen about it.

As you say, it's called "Value Added Tax" and what is "Value Added" if not "Gross Profits"??

And "gross profit" is simply return on capital employed plus wages.

Try rebranding VAT as "Gross Profits Tax" and then it all makes sense.

Graeme said...

it's even worse than that...wse might be getting close to Peak Chocolate:

Dinero said...

One explanation of Vat that I have heard is that it is/was a way of taxing people who were dempnstrating that they could afford to be taxed by spending on luxuries.
With nessesaties being exempt.
Also it looks like it works like an unoficial import duty as it provides a revenue from the sale of imported goods. The alternative - taxes that only impact domestic production would make home produced goods uncompetative.

Mark Wadsworth said...

Din, that's all smoke screen and fig leaf by the Powers That Be.

Remember: VAT is a tax on gross profits = labour and return on capital.

Ignoring "necessities", lower income people tend to buy things with a lower overall mark up.

So a basic Casio keyboard costs £240; a luxury Steinway grand costs £24,000.

The overall mark up on the Casio is a quarter of the selling price, so the VAT at 20% is two-thirds of the overall return to capital and labour.

The overall mark-up on the Steinway is half the selling price, so the VAT is only one-third of the overall return to capital and labour.

So people producing luxuries pay a lower overall VAT rate.

Bayard said...

Dinero, VAT is a tax on luxuries? Don't make me laugh. Gold is about the most luxurious thing you can think of. Gold is zero rated. (silver, OTOH, is standard rated). Clothes are one of the most basic necessities. Clothes are standard rated (and don't give me any crap about children's clothes being zero rated, adults need clothes too). VAT is a universal tax with exemptions for powerful special interests, e.g. banking land, supermarkets.

Mark Wadsworth said...
This comment has been removed by the author.
Bayard said...

"I'm arguing against LVT, full stop."

No you're not, I hope. I hope you are arguing against VAT. I didn't know that private education was zero-rated. I'll add public schools to the list of powerful special interests.

Mark Wadsworth said...

B, my comment, duly corrected:

"good argument.

Other "luxury items" which are VAT zero rated or exempt are houses, however expensive, private education, private healthcare, foreign holidays.

And obviously, most land and finance-related businesses are also zero-rated or exempt.

VAT is there to f- over the little guys.

So land is exempt but repairs and improvements are VAT-able.

PS, I'm not in any way arguing for higher VAT on 'luxury' items, I'm arguing against VAT, full stop."