Business / Economy

Abe orders Cabinet to mitigate impact of coming consumption tax hike

Kyodo, Reuters

Prime Minister Shinzo Abe ordered his Cabinet ministers Monday to make sure domestic demand continues to expand ahead of the consumption tax hike planned for next October.

“While closely monitoring the economic situation at home and abroad, we will respond properly to sustain the economic recovery trend,” Abe said during a government panel meeting.

Private sector members of the Council on Economic and Fiscal Policy requested that the government incorporate special measures to expand domestic demand into its draft for next year’s budget, according to officials.

They also encouraged the government to work toward raising minimum wages and create a growth structure that won’t be influenced by global economic risks, the officials said.

Last month, Abe announced the government’s plan to raise the consumption tax to 10 percent from the current 8 percent in October next year as planned, while stressing it will make “all-out efforts and take all measures” to prevent the increase from having a negative impact on the economy.

The rush to approve public works spending and other measures to support consumption highlights growing concern among policymakers about the economy.

“The prime minister asked me to take firm measures to ensure that our economic recovery continues,” economic and fiscal policy minister Toshimitsu Motegi said at the end of the panel meeting. “He also said the public works spending program expected at the end of this year should be compiled with this point in mind.”

Many economists think the economy contracted in July-September, and a recent slump in machinery orders suggests any rebound in the following quarters is likely to be weak if exports and business investment lose momentum.

Ministers will compile a preliminary public works plan by the end of this month and then submit a final version of the plan by the end of the year, according to documents used at the panel meeting.

Members of the panel did not say how large spending should be or how the government plans to fund the package. At the meeting Abe said compiling the package has become an urgent matter, according to a government official.

The government is considering a ¥10 trillion stimulus package to offset the impact of the coming increase in the consumption tax, sources said last week, as concerns about consumer spending and the global economy grow.

Increasing spending on public works started to gain support after the strong earthquake in September caused a blackout in Hokkaido and a series of typhoons damaged transport infrastructure in western Japan.

At the panel meeting Monday, Abe said it is an “urgent task” to improve Japan’s infrastructure to prevent natural disasters from threatening public safety and the country’s economic foundation.

Abe said employment and income conditions have been improving, but the government needs to monitor global economic developments.

He also stressed that inducing investment from the private sector is an “important key” to achieving sustainable growth.