The government plans to spend roughly ¥2 trillion in fiscal 2019 on measures to underpin consumer demand and alleviate the negative impact of the forthcoming consumption tax hike. Given that the economy went downhill after the consumption tax was last increased, from 5 percent to the current 8 percent, in April 2014, some steps will be necessary to shore up consumer spending when it rises to 10 percent in October next year. However, excessive fiscal measures to offset the impact of the tax hike can defeat the very purpose of the hike — to help rebuild the nation's fiscal health and sustain the social security system. The government should stop and review the effectiveness of the planned measures and their fiscal cost.
According to an outline of the planned measures, the government will offer a 5 percent reward-point rebate to consumers for purchases made via cashless methods such as credit card, for nine months beginning when the tax increase takes effect in October. Although the rebate will not apply to payments made at large chain stores, it could effectively cut the burden on consumers even compared with before the tax hike if the reward points are used for other purchases. The measures will also feature shopping vouchers with enhanced purchasing power — for example, available for ¥20,000 but worth ¥25,000 when buying goods and services at local stores (with the gap to be covered at the government's cost) — issued by municipalities for low-income households or families with children up to 2 years old. Cuts to automobile- and housing-related taxes will be on the menu as well.
The 2014 hike to 8 percent — the first raise in the consumption tax rate in 17 years — resulted in a sharp plunge in consumer spending that threatened to derail the nascent recovery of the economy. Prime Minister Shinzo Abe, whose administration's public support has been buttressed by the good performance of the economy, has since twice postponed the planned second-stage hike to 10 percent, from October 2015 to April 2017 and then again to October next year. When Abe indicated last month he was going ahead with the hike in 2019, he vowed to take every step to prevent it from once again putting the brakes on the economy.