Business / Economy

Economist expects limited impact from Japan's October tax hike

JIJI

The impact of the Oct. 1 consumption tax hike from the current 8 percent to 10 percent will be limited as mitigating measures are already in place, according to the chief economist at the Daiwa Institute of Research.

“The economy is highly likely to be supported as countermeasures are fully prepared for low-income households and elderly people, who shouldered a heavy burden and slashed their consumption in the previous consumption tax rises,” said Chief Economist Mitsumaru Kumagai in a recent interview.

Kumagai said that although world economic growth is slowing, the deceleration is also slow. He added that income and hiring environments are solid in Japan, with capital investment robust among nonmanufacturers.

He also predicted that consumption is unlikely to slump after the tax hike, considering that last-minute demand has been small so far.

There is a possibility, however, that there may be inconsistencies between countermeasures, as they were decided by officials at the Prime Minister’s Office and the details were worked out later, Kumagai said.

For example, the promotion of cashless payments is not only meant as an economy-boosting measure but also as a move to broaden adoption of payments by means other than cash, he said.

“We have to brace for a situation in which things don’t work out as expected,” Kumagai warned.

The upcoming tax hike is meaningful as it will put a brake on Japan’s fiscal deterioration to a certain degree, according to Kumagai.

“Japan is in the worst fiscal situation among developed countries,” he said. “The important thing is to have the Japanese people experience a successful tax hike.”

According to Kumagai, it is necessary to raise the consumption tax to over 20 percent by the 2030s.

“The 10 percent rate is not a goal. It’s crucial to persuade the public (of such a necessity) tenaciously,” he added.