Prime Minister Shinzo Abe has indicated that his administration will go ahead with raising the consumption tax hike from the current 8 percent to 10 percent in October 2019 as planned. He said the additional revenue from the tax hike will both finance his promised reform of the social security system into one “geared to all generations” and contribute to fiscal reconstruction. He also said the administration will mobilize all measures possible to prevent the tax hike from hurting the economy — reflecting on the last consumption tax raise four years ago, which badly dented consumer spending and threatened to derail a nascent recovery.
However, Abe’s decision only confirms that the tax hike, which had been postponed twice for a total delay of four years, will finally take place next year. The two-stage hike to 10 percent had been decided as far back as 2012 and, if implemented, would represent just another step toward fiscal rehabilitation. Government estimates show that the new goal of achieving a primary budget surplus by fiscal 2025 — already pushed back by five years — is still far off unless more stringent efforts are made to curb expenses. Doubts persist as to whether a consumption tax hike to 10 percent will be sufficient to cover the mushrooming social security costs of the rapidly aging population.
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