Japan PM Says Sales Tax to Increase in April
Baku, October 2 (AZERTAC). Japanese Prime Minister Shinzo Abe decided Tuesday to go ahead with a much debated sales tax hike needed to offset Japan‘s soaring public debt.
The sales tax will rise to 8 percent in April from the current 5 percent, Abe announced at a policy meeting of ruling party and top government officials. The Cabinet is due to approve the increase later in the day.
The Cabinet is also expected to give a green light for tax breaks and other stimulus measures meant to counter the wallop to consumer demand from the tax hike.
In opting to press ahead with the tax increase, Abe judged the world’s third-largest economy robust enough to withstand that blow. Holding back might have provoked a backlash from international investors worried over Japan’s ability to handle its public debt, which is the highest among developed nations as a percentage of GDP. Experts say the tax increase is crucial to getting government finances under control.
The decision comes after a survey showed improved business confidence among Japanese companies.
Results from the Bank of Japan’s “tankan” quarterly survey showed large manufacturers were especially upbeat, with a reading of positive 12, up from 4 in the July survey.
The tankan’s results contrast, however, with data for August showing higher unemployment and lower factory production and household spending. Industrial output fell 0.7 percent from the previous month after a 3.4 percent jump in July, according to the Ministry of Economy, Trade and Industry.
“A key reason for the weakness in consumer sentiment is presumably the surge in inflation while wage growth remains subdued,” Capital Economics said in a commentary that forecast growth would slow in the current quarter.
Since taking office late last year, Abe has sought to jolt the economy out of the doldrums with a combination of ultra-easy monetary policy and hefty government spending. He has also promised to promote reforms, such as deregulation of some industries, meant to boost Japan’s longer-term competitiveness — most of which have yet to be enacted.
If domestic demand weakens significantly, “2015 could be a tough year for Japan,” he said.
The economy grew 3.8 percent in April-June after recovering from recession late last year. But it is expected to slow as boosts to public spending announced earlier in the year wind down. Economists expect a boost from “front-loading” of purchases by businesses and individuals ahead of the tax hike, followed by a blow to growth from higher prices and taxes over the next few years.
Abe’s options were to shelve, delay or amend the tax hike if he judged it too risky.
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