Abe announces Japan will raise sales tax in April as planned
TOKYO (Kyodo) -- Prime Minister Shinzo Abe said Tuesday his government will raise Japan's sales tax rate in April to 8 percent from the current 5 percent as planned, ending nearly a year of public speculation over whether he will sanction a tax increase that some experts warn could undermine the country's nascent economic recovery.
Abe also unveiled a 6 trillion yen ($61 billion) economic stimulus package amid fears the consumption tax hike, the first increase of the tax since April 1997, may dampen business and household spending, and derail his efforts to end nearly two decades of deflation in the world's third-biggest economy with his "Abenomics" policies.
"In order to maintain confidence in (the fiscal policy of) Japan and establish a social security system that is sustainable for future generations, I have made a decision to raise the sales tax rate to 8 percent from 5 percent on April 1, 2014," Abe said at a meeting with ruling party lawmakers.
At a press conference later in the day, he stressed that the government "can achieve a balance between economic revival and fiscal rehabilitation," denying prospects of an economic downturn due to the tax increase.
As for raising the sales tax to 10 percent in October 2015, which is the second step of the two-stage tax hike under legislation passed last year, Abe said he will carefully study economic conditions before "deciding appropriately."
The prime minister also said the government will "seriously consider" lowering corporate tax rates to further assist companies and offset the possible negative impact on their appetite for fresh capital spending from the higher consumption tax.
Earlier Tuesday, Abe told a session of the government's panel on economic and fiscal policies that he still believes the government should prioritize the battle against deflation.
But he also said he well recognizes the need for improving Japan's fiscal health, the worst among major developed countries, and that he "will make certain the path" toward that goal.
The advisory panel, involving both Cabinet ministers and corporate executives, submitted a proposal for Abe to "firmly maintain fiscal discipline."
Japan faces the challenge of dealing with deteriorating public finances. The sales tax increase is designed to help the government secure funds to cover the swelling welfare costs in the country due to its graying population.
Raising the tax is also considered necessary for the government to maintain international confidence in Japan, as it pledged to pursue certain fiscal rehabilitation goals at forums such as the summit of the Group of 20 major economies.
Abe had said he would make up his mind on whether to raise the tax after examining various economic data for signs of recovery, including the most recent quarterly gross domestic product data and the Bank of Japan's Tankan business sentiment survey.
In addition to a continued rise in GDP, the Tankan survey released Tuesday showed a faster-than-expected improvement in confidence among major manufacturers in the three months through September, which reached its highest level in nearly six years, apparently clearing the last hurdle for Abe to decide on the sales tax increase.
The hike of the politically sensitive tax will be the first since April 1997, when the rate was increased to 5 percent from 3 percent, the level at which the tax was introduced in April 1989.
Following the introduction and the first raising of the tax, the governing Liberal Democratic Party suffered defeats in parliamentary elections in 1989 and 1998.
The legislation for the latest hike is based on an agreement reached last year among three parties -- the then ruling Democratic Party of Japan, the LDP as the main opposition and its partner the New Komeito party.
It stipulated the government could shelve the tax hike plan if a significant deterioration of the economy were confirmed.
After the LDP returned to power under Abe's leadership by beating the DPJ in December's general election, the prime minister expressed reservations about the planned tax hike, stressing the need to beat deflation first and introducing the Abenomics policies to achieve that goal.
As signs of recovery have been seen, such as relatively strong economic growth, low unemployment and an upturn in consumer prices, some experts said the government should raise the tax as planned and could offset any negative impact on business and household spending by introducing stimulus steps.
In August, the government held hearings with 60 experts from various sectors of the economy, and about 70 percent of them conditionally supported the tax hike plan.
Skepticism remained, however, as others who joined the hearings -- including Abe's economic advisers -- showed reluctance to back the current government plan.
They instead proposed options to safeguard the nascent economic recovery, such as postponing the tax increase by a year or making the margin of increase smaller, for example 1 percentage point a year, even if the tax hike starts in April as planned.
October 01, 2013(Mainichi Japan)