The financial impact on households of a planned October 2019 consumption tax hike could be reduced to ¥2.2 trillion if the government implements countermeasures, including lower tax rates for certain food items, according to the Bank of Japan’s recent estimate.
Without the alleviating measures, the financial burden on households in fiscal 2020 is projected to rise ¥5.6 trillion from fiscal 2018.
The estimates, shown in the latest version of its quarterly Outlook for Economic Activity and Prices report, released last week, are the first by the central bank for the looming tax hike’s impact on households. The consumption tax is scheduled to rise to 10 percent from 8 percent next fall.
“In terms of the net burden on households, the impact of the scheduled consumption tax hike in fiscal 2019 is expected to be smaller than that of past tax hikes,” the BOJ said in the report.
But it noted that the tax hike’s impact is “highly uncertain, partly because the effects on consumer sentiment can differ substantially.”
According to the report, the April 1997 consumption tax hike, by 2 percentage points to 5 percent, pushed up the household burden that fiscal year by ¥5.2 trillion from the previous year. However, the net burden rose ¥8.5 trillion, due partly to the repeal of income tax breaks.
The April 2014 hike, by 3 points to 8 percent, had a direct impact of ¥8.2 trillion on households, with the net household burden up ¥8 trillion in fiscal 2014.