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Tax hike counter-stimulus approaches ¥6 trillion

Kyodo

The stimulus package planned to buffer the economy from next year’s consumption tax hike will be worth ¥6 trillion, including ¥1 trillion in tax cuts to stimulate corporate investment, officials said Monday.

Prime Minister Shinzo Abe’s Cabinet will approve the stimulus Tuesday and decide to raise the 5 percent consumption tax rate to 8 percent next April as scheduled, the officials said. Another hike will complete its doubling to 10 percent in October 2015.

Abe, who is concerned the first tax hike will sabotage a nascent economic rebound by damping consumer spending, met Finance Minister Taro Aso and economic and fiscal policy minister Akira Amari on Monday at his office to put the final touches on the package.

The stimulus will be accompanied by another promise to pave the way for Japan’s exit from nearly two decades of deflation and economic stagnation, the officials said.

The details will be hammered out in early December, while an extra budget for fiscal 2013 to fund the stimulus will be compiled in an integrated manner with the initial budget for fiscal 2014 at the end of the year, they added.

In the meantime, the government remains interested in prematurely abolishing the special corporate income tax surcharge for funding Tohoku’s reconstruction as an incentive for businesses to raise wages, they said. The disaster tax for individuals, however, would remain in place.

In a draft of the stimulus package, the government says abolishing the corporate surcharge a year earlier than scheduled, described as a tax break, will help companies “take one step toward continuous wage increases,” an official said. It is estimated that abolishing the three-year surcharge a year ahead of time will reduce government revenues by around ¥900 billion.

The stimulus package will also contain a pledge saying that the Ministry of Economy, Trade and Industry will survey wages at major companies and disclose the results, they said.

The surcharge on individual income tax, meanwhile, will be retained because ending it would hamper government efforts to fund Tohoku’s reconstruction from the March 2011 disasters, they said.

In the draft, Abe’s administration urges companies to play a key role in revitalizing the economy, including in the disaster-hit regions, by paying higher wages.

The government will also promise to provide the funds necessary for the reconstruction work via a supplementary budget for fiscal 2013 ending March 2014.

Abe’s Liberal Democratic Party supports ending the corporate tax surcharge ahead of schedule, but many in its Buddhist coalition partner New Komeito oppose the move because it might have a negative impact on Tohoku’s reconstruction.

The sales tax hike is aimed at covering swelling social security costs for Japan’s graying population. Japan has the worst fiscal health among the major developed economies, with public debt more than 200 percent of gross domestic product.

Under legislation enacted in August last year, the consumption tax rate will be doubled in two stages to 10 percent in October 2015.

  • phu

    I really wonder how much time it’s going to take for the actual tax increase to balance out this sort of ridiculous “counter-stimulus.”

    This is basically the government saying “well, we believe we’re doing the right thing, but we aren’t willing to commit to it, so we’re going to forfeit almost all of the gains for the next X years so people don’t freak out.”

    Pick one, guys. I know it’s not the Japanese way to commit to major change, but obviously it needs to happen. Do it or don’t. At this rate you’ll get stuck in the endless extension of tax breaks we’ve been watching in the US for decades.