Oct 15, 2018
TOKYO - Japanese Prime Minister Shinzo Abe is set to announce later Monday that the government will raise consumption tax to 10 percent from the current 8 percent as scheduled in October 2019.
Abe is also expected to instruct relevant ministers to come up with measures to mitigate the negative impact of the tax hike, which he has delayed twice amid concerns that it would dampen consumer spending and hurt the economy.
(A grocery store in Tokyo)
The prime minister is expected to make the formal announcement during an extraordinary Cabinet meeting, where a supplementary budget of around 940 billion yen ($8.4 billion) for fiscal 2018 is expected to be approved to promote reconstruction in areas hit by torrential rains, earthquakes and typhoons earlier this year.
Earlier in the day, the government compiled the draft budget for submission to the extraordinary parliament session to be convened late October.
Although the 3 percentage-point consumption tax raise in 2014 was blamed for pushing the Japanese economy into recession, the government says another hike is indispensable for financing swelling social security costs due to the rapidly graying population.
Part of the expected revenue from the tax raise will go to expanding childcare support, including preschool education, which Abe pledged during campaigning for the 2017 House of Representatives election.
Abe, who secured another three-year term as president of the ruling Liberal Democratic Party last month, has repeatedly said that the government will increase the consumption tax next year unless serious economic turmoil occurs.
The decision comes after the premier apparently judged that Japanese households can withstand the tax hike while the economy is expanding.
The government will introduce a reduced tax rate on food and other daily necessities including newspapers, keeping it at 8 percent.
As a way of alleviating the impact, the government is considering subsidizing small and medium-sized retailers to refund 2 percent of consumers' purchases in the form of reward points for a limited period in case of payments through cashless means such as credit cards.
The government also plans to expand tax breaks for pricey purchases such as cars and homes.
Those measures are expected to be incorporated into the ruling bloc's tax reform outline to be compiled in December and the government's draft budget for fiscal 2019 beginning April.
Japan raised its consumption tax from 3 percent to 5 percent in April 1997. The rate was hiked to the current 8 percent in April 2014 under the Abe administration.
Although the 2 percentage-point tax hike from 8 percent has been treated as the second phase of a two-stage consumption tax raise from 5 percent to 10 percent, Abe pushed back the schedule twice, first from October 2015 to April 2017, and then to October 2019.
Restoring fiscal health is seen as an urgent yet difficult task for the debt-ridden country, given that the rapid aging of Japan's population means swelling social security expenses such as medical costs and pensions.
As Abe decided to review the allocation of the revenue from the envisioned tax hike with an increased focus on childcare support, he delayed the target for achieving the country's fiscal rehabilitation goal to fiscal 2025 from fiscal 2020.
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