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A sober young generation is giving Japan a hangover

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The Machiavellian ruler of Terry Pratchett’s Discworld novels, Lord Vetinari, once compared taxation to dairy farming. “The task,” he said, “is to extract the maximum milk with the minimum moo.”

Japan’s tax agency is learning this lesson the hard way. He ended up with an unexpected amount of moo after a seemingly innocent campaign to support the local industry went viral. The problem was that the sector in question was the alcohol trade; The agency is soliciting open ideas from young people on ways to help revitalize the nation’s liquor trade, amid a decline in youth drinking.

Tax revenue from alcohol has been declining for years in Japan as the population ages and a smaller younger generation shuns binge drinking habits of the past, such as after-work binges in the past. mandatory. This is bad news not only for Japanese taxpayers, but also for listed beer and spirits makers, the 1,400 sake breweries and hundreds of other makers of shochu, whisky, craft beer and gin. .

Little did agency bureaucrats suspect their campaign would end up making international headlines after the story first surfaced on domestic social media. It quickly became one of the rare times when the foreign media took an interest in the world’s third-largest economy. “Japan urges young people to drink more to boost economy” was a typical headline.

Of course, the ad says precisely nothing about reviving the economy, nor does it encourage excessive drinking. However, the Japanese economy needs a boost. The country’s recovery from the pandemic has been slower than that of its peers, with gross domestic product only recovering to pre-Covid levels in the quarter to June, a year after the United States. Alcohol tax accounts for almost 2% of Japan’s total tax revenue; one estimate puts the size of the industry at nearly $25 billion.

Japan has, however, seen an increase in the number of “sober curious” – around 40% of men in their 30s said in 2017 that they did not drink, could not or almost never drink alcohol, compared to 28% 10 years. earlier, according to the NLI research institute. The figure rose from 54% to 65% among women, and the same trend is reflected in the other age groups. Japan’s revenue from liquor tax has fallen nearly 50% from its peak in 1994.

With alcohol having both potential benefits and risks, the objections seem to boil down to this: should some branch of government encourage people to drink, even in moderation? It is certainly up for debate. But Japan’s tax agency isn’t alone here in explicitly or otherwise encouraging a drink. Kentucky is offering tax credits to its booming bourbon industry and plans to go even further with tax cuts. French President Emmanuel Macron is a strong proponent of drinking two glasses of wine a day and is said to have opposed a “dry January” program. It’s modeled on a month of abstinence in the UK – where at the same time the government slapped itself on the back for its funding of pubs in rural areas. This, according to the government, helped prevent pubs from closing, which “boosted drunken Britain (1)”.

An irony here is that if tax coffers are suffering as young people turn away from alcohol, much of that blame can be placed on the Japanese government itself. For nearly half of 2021 the government has asked bars and restaurants not to serve alcohol as part of attempts to reduce Covid infections – and rather than push people to outdoor venues where the risk was weaker, has discouraged young people from drinking in parks or on the streets.

As with many Covid-era policies, the ripple effects of an excessive alcohol crackdown are being felt, even as Japan gradually softens its stance on the virus amid a lower-than-life death rate. that of previous waves. The number of pub-style izakaya restaurants run by the top 15 companies has fallen 23% since before the pandemic, according to Tokyo Shoko Research. Many workplaces still discourage employees from getting together to drink together; others continue to willfully avoid socializing even in the absence of government pressure to do so. This week, a local newspaper summed up the sober attitude when it appeared to suggest that Prime Minister Fumio Kishida’s recent Covid infection was due to restaurant meals and vacations, unlike his predecessor.

Tax revenue as a percentage of GDP is just 19%, according to the Ministry of Finance, compared to 33% in Sweden or 47% in Denmark. Meanwhile, Japan spends as if collecting the income of a Scandinavian nation; social security contributions and debt repayment represent half of its budget. After tracking spending closely for years, tax revenues have been largely flat since 1990, while spending has continued to rise – a disturbing formation often referred to here as the “mouth of the crocodile”. This situation has only worsened during the pandemic and is unlikely to improve as the working-age population ages.

Japan has struggled to introduce new sources of tax revenue. Debates over increasing the sales tax, something other countries are doing overnight, have exhausted much of the political oxygen of the past decade; it continues to be debated to this day with periodic calls to lower it. Other sources of revenue are also down, with the drop in tobacco tax as well as the fee levied on international tourists, another consequence of government policy. Gasoline tax, which accounts for more than 3% of tax revenue, is unlikely to increase in the coming years as the country envisions a carbon-neutral future.

In other words, Japan is spending more than it can afford, so forgive the tax office for looking for solutions. Is that so different from the rise in the number of US states legalizing marijuana — which generated more than $11 billion in tax revenue from 2014 to 2021, according to one estimate? In the end, someone has to supply the milkman.

More from Bloomberg Opinion:

• Japan should not raise taxes on retail investors: Gearoid Reidy

• IRS has problems $80 billion won’t solve: Tyler Cowen

• At 5, India’s tax reform is out of steam: Andy Mukherjee

(1) A note to American readers: “boozer” here means the pub rather than someone drinking in one – although the phrase works both ways.

This column does not necessarily reflect the opinion of the Editorial Board or of Bloomberg LP and its owners.

Gearoid Reidy is a Bloomberg Opinion columnist covering Japan and the Koreas. He previously led the breaking news team in North Asia and was the deputy chief of the Tokyo bureau.

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