Small Change Adds Up

   I've been noticing small changes in the prices of everything lately. The prices of drinks sold from vending machines also went up yesterday.

   A bottle of Oronamin C (bottom row, second from the right) cost ¥110 in the morning. By the afternoon, it was selling for ¥120. The price of a bottle of Ribobitan D (blue and white bottle at the bottom right) shot up, from ¥150 to ¥160.

   As I put in an extra ten yen into the machine, I couldn't help feeling that the numbers weren't adding up.   

   If the price of a bottle of Oronamin C, excluding tax is roughly ¥105, the new price including 8% sales tax should be about ¥113 rather than ¥120.

   Perhaps, the drink makers were taking into account that the consumption tax is going to be raised to 10% next year. Well, even with a 10% consumption tax, a bottle of Oronamin C would still cost only ¥115. What this means, of course, is that the vendors of Oronamin C are pocketing an extra seven yen in revenue for each bottle they sell through their machines. 

   The same is true for Ribobitan D. Before the consumption tax increase, a bottle cost ¥150. Today, ¥160.
The actual price of a bottle of the drink, excluding sales tax, comes to ¥143. With a sales tax of 8% a bottle should cost ¥154, not ¥160. Even with the sales tax doubled to 10% a bottle would sell for ¥157. So, with each bottle of Ribobitan D or similarly priced item, the distributor is making an extra six yen in revenue. 

   It seems that while many companies have balked at the idea of increasing the consumption tax, many of them are using this as an opportunity to bolster the bottom line. 

   Later . . . 

   A friend took issue with my claim that Japanese companies were using the tax hike to increase profits (I wrote "revenue", but profit was what I was really getting at), arguing that the vendors have been operating on "wafer thin margins" for years.

   That got me thinking. Were these vending machine operators really just scraping by? If they were, I doubt for one that there would be so goddamn many vending machines out there. Anyone who visits Japan will be surprised by not only how ubiquitous drinks machines are, but by how well maintained, new, and increasingly high-tech the vending machines are. The companies are clearly earning enough money to put some of it back into developing or purchasing new "hardware" on a regular basis. 

   And what, I wondered, did a bottle of Oronamin C actually cost the distributor. Although O.C. now sells for ¥120 at most vending machines, I discovered that at one of the universities where I teach, O.C. was still selling for only ¥100. The local supermarket down the street sells bottles of the energy drink for as little as ¥84. At ¥84, the cost of a bottle of O.C. minus consumption tax is ¥77.3. Assuming that O.C. is not a loss leader and the supermarket has a flat profit margin of, say, 2-3% on all of its products like Costco, then a bottle of Oronamin C really costs about ¥74. Or possibly even less than that. (A can of Dr. Pepper at Costco, for instance, only costs about ¥60 per can if you buy a case of 24.)

   I also looked into Otsuka, the maker of Oronamin C, to see how many bottles of the energy drink it produces every year. Would you believe that 25 BILLION bottles of the stuff was consumed in 2000 (the latest year for which I could find reliable stats)? With production levels so high, I doubt the pharmaceutical company and the distributors who sell its products are hurting all that much. A company that big and profitable probably knows what it's doing. 

Debt and Taxes 2

   Despite the rebellion of 57 members of his Democratic Party of Japan, Prime Minister Yoshihiko Noda was able to pass a key bill (363-96) paving the way for the consumption tax double by 2015. The bill is likely to be passed by the upper house later this summer.

   While the daily shenanigans occurring in the Shûgiin, Japan’s House of Representatives, are often in the news, little is reported of what happens in the Sangiin,[1] the upper house of the Diet of Japan.

   I have written before that with the lower house possessing virtually all the power in Japan—decisions by the upper house can be overridden by a two-thirds majority vote in the House of Representatives—it would not hurt democracy in this country were the House of Councillors abolished, or, at a minimum, had its membership reduced from its present 242 to, say, 94 (one for each of Japan’s 47 prefectural districts and additional 47 that are allotted proportionally). The 480 members in the House of Representatives could also stand being reduced by a quarter to a half.

   You’d be surprised how much a person can earn for doing very little work. The average annual salary of a member of the Diet is about ¥28,959,000[2] ($361,988[3]). That figure includes an estimated monthly salary of ¥1,887,000 ($23,588) plus an average “bonus” of ¥6,320,000 ($79,000) per year. Bonuses in Japan are typically paid in June and December. The annual salary of an American senator as of 2009 was $174,000, or less than half what a Japanese Diet member earns.

   Unlike the lower house, Shûgiin, the upper house, Sangiin, cannot be dissolved by the Prime Minister. Members of the upper house, then can expect to serve the full six years, earning about ¥173,754,000 ($2,171,925) over the course of their term in office.

   Members of the Diet also have some unique rights.

   They cannot be arrested when parliament is in session. (How convenient is that!) They have the privilege of being exempt from responsibility for things done or said in the Diet. They can travel by “Green Car”[4] on JR, the Shinkansen, and express trains for free. They may take four round trip flights for free each month. They are also able to rent apartments at considerably lower than market price. For example, they can rent what the Japanese call a 3LDK apartment in Shin Akasaka for ¥92,000 ($1,150) per month when the market price for such an apartment can be as high as ¥500,000 ($6,250) per month.

   Now, imagine the savings if you were to get rid of 148 of these upper house members. You’d reduce the cost of running the House of Councillors by at least ¥4,285,932,000 ($53,574,150) per year. Add the savings found in no longer having to maintain an office, staff, security, and so on for these sacked Diet members and that four trillion yen reduction will become even larger.

   And if we bring the ax down on membership in the lower house as well, the total savings found in no longer paying the salaries for these 372 bums[5] could be over 10 trillion yen, or $130 million per year.

   So, Mr. Noda, if you are truly interested in getting the nation’s finances back in order, please reduce the waste and redundancy in the government before letting the consumption tax double. I’ve already shown you where you can save ten trillion yen every year and I’m just a stupid gaijin. Surely, you can do better. After all, that’s what they pay you the big bucks for, right?

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[1] Sangiin (参議院), the upper house of the Japanese Diet is also known as the House of Councillors.

[2] Data is from the Nenshû Labo (Salary Lab). Figures are for the year Heisei 19, or 2007.

[3] Dollar figures are calculated at a rate of 80 yen to one U.S. dollar.

[4] First class.

[5] There are currently 722 Diet members in Japan—480 in the House of Representatives and 242 in the House of Councillors. I propose cutting the numbers to 250 in the lower house and 100 in the upper house.