Japan

Gov’t outlines fiscal stimulus to ease tax hike impact

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The government on Monday unveiled an outline of fiscal measures it hopes will bolster Japan's economy after next year's consumption tax increase.

The measures, which include tax cuts for car owners and rebates on some cashless purchases, will account for roughly 2 trillion yen ($18 billion) of the state budget for the fiscal year starting next April.

Prime Minister Shinzo Abe confirmed last month that the government will follow through on its plan to raise the consumption tax from the current 8 percent to 10 percent on Oct 1, 2019, promising "extraordinary measures" to keep private consumption steady.

The tax hike is "absolutely necessary for fiscal consolidation but could hurt the economy if it causes a swing in demand before and after" the change, Toshimitsu Motegi, minister of economic and fiscal policy, explained at a press briefing.

Low-income households or those with children aged 2 and under will be eligible to use shopping vouchers with enhanced purchasing power. The vouchers, to be issued by municipal governments, would, for example, be available for 20,000 yen but be worth 25,000 in goods and services when used at local stores.

Abe has said the rebates for cashless payments, which include those made by credit card, smart card and QR code, would be 5 percent of the purchase price and last for nine months after the tax hike.

The rebates will only apply to purchases made at small and medium-sized businesses, and not at large chain stores, the government said.

Reward points will also be handed out to people who buy new homes or renovate existing ones to meet energy-saving and earthquake-proofing requirements. A similar measure was previously implemented when the consumption tax was raised from 5 percent in 2014.

The list of measures also includes subsidizing daycare and preschool, as well as spending to make infrastructure more resilient to natural disasters.

The government is eager to avoid repeating the impact of the 2014 tax hike, which saw domestic demand collapse and caused Japan's economy to fall into recession just as it was recovering.

But the tax offset measures unveiled Monday, which are expected to be announced in more detail next month, also show the government is putting less emphasis on improving its battered fiscal health, which remains the worst among major economies.

© KYODO

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