Business / Economy

Government outlines fiscal stimulus to ease impact of Japan’s next consumption tax hike

Kyodo

The government has unveiled an outline of fiscal measures it hopes will bolster the economy after next year’s consumption tax increase.

The measures, which include tax cuts for car owners and rebates on some cashless purchases, will account for roughly ¥2 trillion of next year’s budget, officials said Monday.

Prime Minister Shinzo Abe confirmed last month that the government will follow through on its plan to raise the consumption tax to 10 percent from 8 percent next Oct. 1, promising “extraordinary measures” to keep private consumption steady.

The tax hike is “absolutely necessary for fiscal consolidation but could hurt the economy if it causes a swing in demand before and after” the change, Toshimitsu Motegi, minister of economic and fiscal policy, explained at a press briefing.

Low income households and those with children aged 2 and under will be eligible to use shopping vouchers with enhanced purchasing power. The vouchers, to be issued by municipal governments, would, for example, be available for ¥20,000 but be worth ¥25,000 in goods and services when used at local stores.

Abe has said the rebates for cashless payments, which include those made by credit card, smart card and QR code, would be 5 percent of the purchase price and last for nine months after the tax hike.

The rebates will only apply to purchases made at small and medium-size businesses, and not at large chain stores, the government said.

Reward points will also be handed out to people who buy new homes or renovate existing ones to meet energy-saving and earthquake-proofing requirements. A similar measure was implemented when the consumption tax was raised to 8 percent from 5 percent in 2014.

The list of measures includes subsidizing day care and preschool, as well as spending to make infrastructure more resilient to natural disasters.

The government is eager to avoid repeating the impact of the 2014 tax hike, which saw domestic demand collapse and caused the economy to fall into recession just as it was entering a recovery phase.

But the tax offset measures unveiled Monday, which are expected to be announced in more detail next month, also show the government is putting less emphasis on improving its battered fiscal health, which remains the worst among major economies.