Benefits of sales tax hike in Japan outweigh negatives

TOKYO: The benefits of raising Japan’s sales tax again outweigh the negatives, even if Prime Minister Shinzo Abe diverts some of the additional revenue to education and welfare, an official at ratings agency Moody’s Investors Service said yesterday.

The exact timing of when Japan achieves a primary budget surplus is not that important as long as the government is committed to fiscal reform in the medium-term, Christian de Guzman, a vice-president of sovereign ratings at Moody’s, told Reuters in an interview.

The comments could ease concerns about Japan’s fiscal discipline after Abe called for a snap election on Oct 22 with promises to spend more on education, and welfare to appeal to voters.

“Before parliament was dissolved, there was a bit of uncertainty that the tax hike would go through,” de Guzman said. “The benefits (of Abe’s plan) outweigh the negatives.” Moody’s rating on Japan is A1, which is four notches below its top rating. Its outlook for Japan is stable. A central plank of Abe’s campaign is that he wants to go ahead with a sales tax hike to 10% from 8% in October 2019 and use some of the funds to subsidise education for pre-schoolers instead of paying down debt.

The tax hike would generate around ¥5 trillion (RM187.5 billion) in revenue, but Abe plans to earmark only around ¥2 trillion for education and welfare, which is supportive of fiscal policy, de Guzman said.

Abe’s ruling Liberal Democratic Party also has omitted the deadline by which it aims to return to a primary budget surplus from its campaign platform. Originally, the government said it would achieve this goal in fiscal 2020.