December 20, 2018 / 10:40 AM / 9 months ago

Japan minister lays out plan to soften blow from coming sales tax hike

TOKYO (Reuters) - Japan’s economy minister on Thursday laid out a plan to offset the negative impact of a sales tax hike with education subsidies, shopping vouchers, tax breaks on durable goods and public works spending.

Japan's Minister of Economic Revitalization Toshimitsu Motegi speaks during the signing agreement ceremony for the Trans-Pacific Partnership (TPP) trade deal, in Santiago, Chile March 8, 2018. Picture Taken March 8, 2018. REUTERS/Rodrigo Garrido

The government is scheduled to raise the nationwide sales tax to 10 percent from 8 percent in October to pay for rising welfare costs, but many officials are worried this will cause a big decline in consumer spending.

Preparations for the tax hike come at a sensitive time as the pace of export growth has dropped sharply due to the U.S.-China trade war, which could cause some companies to cut capital expenditure next year.

“This package should be more than enough for us to overcome any negative side effects from the tax hike,” Economy Minister Toshimitsu Motegi said.

“It is important to make sure the public is aware of all the steps we are taking to even out the impact of this tax hike.”

The government expects the sales tax hike to cost households a total of 5.2 trillion yen ($46.48 billion) each year, on average, according to a presentation Motegi made to its top advisory panel.

Already, the government has a plan to subsidize education costs, hand out special payments to pensioners and exempt some food from the tax hike, which will increase cumulative household income by 3.2 trillion yen, according to the presentation.

To offset the remaining 2 trillion yen burden, the government will offer shopping vouchers, reduced taxes on mortgages, tax breaks for auto purchases and increased public works spending, all on a temporary basis.

The government will spend around 2.3 trillion yen on these temporary measures, which should eliminate the burden on the household sector, a government official told reporters.

Prime Minister Shinzo Abe’s government is spending big to avoid a repeat of the economic downturn caused by the April 2014 sales tax hike to 8 percent from 5 percent, and he is putting fiscal reform on the backburner.

Abe has twice postponed the planned hike to 10 percent. But he has vowed to go ahead this time by taking “more than enough steps” to cushion the impact and to level off a surged in demand before the hike and a pullback afterward.

Reporting by Stanley White; Editing by Richard Borsuk

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