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Japan unveils sales tax hike
TOKYO, Oct 15, 2018 (BSS/AFP) – Japan on Monday announced a much
anticipated sales tax hike in 2019 to address the nation’s huge public debt,
despite warnings it could hobble growth in the world’s third-biggest economy.
The point-of-sale tax will rise from eight percent to 10 percent from
October next year as ageing and heavily indebted Japan battles to finance
snowballing social security bills — especially medical fees.
The tax rise was originally planned for October 2015 but was pushed back
twice due to fears it could derail the fragile economy.
The last such move — in April 2014 — was blamed for tipping Japan into a
brief recession.
This time, Prime Minister Shinzo Abe believes he can avoid a sharp decline
in consumer spending by introducing measures to cushion the blow.
The government “will do its best to avoid a negative impact on the economy
by taking every possible measure,” Chief Cabinet Secretary Yoshihide Suga
told reporters.
However, Suga added that the planned hike could still be scrapped if there
were a potentially historic recession like a global slump triggered by the
2008 collapse of Lehman Brothers.
The measures will include plans to leave the sales tax on food unchanged
at eight percent, Suga said.
The government also plans subsidies to offset the impact of the sales tax
hike on some durable goods such as houses and environmentally friendly cars.
And the proceeds from the tax hike will go in part to fund free nursery
places to ease the impact on families and encourage Japanese to have more
babies, as the population continues to shrink at a fast pace.
“I don’t think the sales tax this time will create a setback in the
economy,” Hideo Kumano, chief economist at Dai-ichi Life Research Institute,
told AFP, adding that a hoped-for rise in wages would be critical.
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The measures to mitigate the impact on consumption and an expected rise in
salaries next year should be enough to absorb a shock from falling disposable
income, he said.
Kumano said further delaying the tax hike could in fact be more damaging.
This would “prompt worries over the future financing of the social
security system that in turn would have negative impact on consumption,”
Kumano said.
Abe has frequently stressed that reforming the country’s social security
system is “the biggest challenge” facing his government and has pledged to
tackle the issue.
IMF chief Christine Lagarde warned earlier this month that the challenges
facing the country will “only grow as Japan’s population continues to age and
shrink,” noting that both the size of the economy and the population are on
track to shrink by a quarter over the next 40 years.
In addition, a loss of confidence in Tokyo’s ability to pay its debts
could send interest rates soaring and increase the risk of a bankruptcy.
Ratings agencies have previously cut Japan’s credit standing over its debt
levels.
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