Japan to raise sales tax to 10 per cent in 2019
TOKYO: Japan on Monday announced a much anticipated sales tax hike in 2019 to address the nation’s huge public debt, despite warnings it could hobble growth in the world’s third-biggest economy.
The point-of-sale tax will rise from eight per cent to 10 per cent from October next year as ageing and heavily indebted Japan battles to finance snowballing social security bills — especially medical fees.
The tax rise was originally planned for October 2015 but was pushed back twice due to fears it could derail the fragile economy.
In 2014, Abe’s government raised the sales tax to 8 per cent from 5 per cent in the first increase in 17 years. Following the move, the world’s third-largest economy suffered a recession amid sluggish private consumption.
When Abe took office in December 2012, he vowed to reinvigorate the economy. However, despite years of massive economic stimulus, his government has struggled to achieve solid economic growth in ageing, shrinking Japan.
This time, Prime Minister Shinzo Abe believes he can avoid a sharp decline in consumer spending by introducing measures to cushion the blow. The government “will do its best to avoid a negative impact on the economy by taking every possible measure,” Chief Cabinet Secretary Yoshihide Suga told reporters.
However, Suga added that the planned hike could still be scrapped if there were a potentially historic recession like a global slump triggered by the 2008 collapse of Lehman Brothers.
The measures will include plans to leave the sales tax on food unchanged at eight per cent, Suga said.
The government also plans subsidies to offset the impact of the sales tax hike on some durable goods such as houses and environmentally friendly cars.
And the proceeds from the tax hike will go in part to fund free nursery places to ease the impact on families and encourage Japanese to have more babies, as the population continues to shrink at a fast pace.
“I don’t think the sales tax this time will create a setback in the economy,” Hideo Kumano, chief economist at Dai-ichi Life Research Institute, said, adding that a hoped-for rise in wages would be critical.
The measures to mitigate the impact on consumption and an expected rise in salaries next year should be enough to absorb a shock from falling disposable income, he said.