Japan

Gov’t plans 5% rebates for some cashless payments after tax hike

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Japan plans to give a 5 percent reward-point rebate to consumers on some payments made through credit cards and other cashless means as a way of underpinning domestic demand after a planned tax increase next October, government officials said Thursday.

The special measure, expected to last for roughly nine months until the 2020 Tokyo Olympics, was expanded from an earlier plan to implement a 2 percent rebate program.

Fumio Kishida, policy chief of the ruling Liberal Democratic Party, told reporters that Prime Minister Shinzo Abe had informed him of the plan in a meeting at the premier's office.

The rebate will be handed out in the form of reward points rather than cash, and will not apply to payments made at large store chains, according to officials with knowledge of the plan.

The initiative is part of a series of steps the Japanese government plans to take to ensure that raising the consumption tax from the current 8 percent to 10 percent does not put the brakes on economic activity.

It is also intended to encourage greater use of cashless methods in payment as dependence on cash among Japanese consumers is relatively high.

The government is apparently tilting toward a 5 percent rebate, compared with the 2 percent it previously weighed, so the world's third-largest economy can cushion the impact of the planned tax hike on consumption.

But the change would mean government spending will simply more than double from its original plan and further erode Japan's fiscal health, already the worst among advanced economies.

"We need to take steps that can leave a sweeping impact," economic revitalization minister Toshimitsu Motegi said at a press conference.

The government plans to set aside a total of around 2 trillion yen in the fiscal 2019 budget for such measures, which also include shopping vouchers with enhanced purchasing power for households with low income or children under 2 years old.

Abe had instructed ministers and government officials to draw up measures to prevent sharp swings in demand before and after the tax increase.

As Japan braces for unified local elections in the spring and upper house elections in the summer, stable economic growth is a priority for Abe.

Some unconvinced opposition party leaders criticized the envisaged plan as a tactic to woo voters and questioned its legitimacy.

"It may cause fiscal health to deteriorate instead," Yuichiro Tamaki, leader of the Democratic Party for the People, told reporters.

Abe has decided to change how the expected increase in tax revenue will be spent, allocating more to child-care support and less to restoring fiscal health. He has delayed the timing for achieving the country's fiscal rehabilitation goal by five years to fiscal 2025.

© KYODO

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