Japan's prime minister announces sales tax hike from 8% to 10%
The extra revenue will pay for healthcare costs for the country's ageing population, but there are fears that higher taxes will hit consumer spending and curb growth
Tokyo — Japanese Prime Minister Shinzo Abe on Monday pledged to go ahead with an increase in the national sales tax next October.
Abe said the government would consider tax breaks for durable goods purchases, such as cars and homes, and come up with a scheme to ease the burden on small companies and small retailers once the sales tax is raised to 10% from 8%.
The government will exempt food from the tax hike, but there are still lingering concerns that higher taxes will hurt consumer spending and curb economic growth.
“We are scheduled to raise the sales tax to 10% from 8% in October 2019,” Abe said, according to a statement.
“We have to face the problems caused by our ageing society and build a welfare system that is fiscally sound.”
The government needs extra tax revenue to pay for ballooning healthcare costs for its rapidly ageing population.
Japan has the world’s largest debt burden, at more than twice the size of its $5-trillion economy, leaving its public finances in a precarious position.
However, even the slightest increase in tax rates can have deep and long-lasting consequences for Japan’s price-conscious households.
In addition to food, the government will exempt sold beverages from the tax increase, meaning retailers can continue to sell these goods at the current 8% tax rate.
The tax on most goods will rise to 10%, so retailers will have to deal with the burden of managing multiple tax rates.
The government would use half of the revenue generated from the tax hike to subsidise education costs, Abe said in the statement.
Earlier on Monday, the government approved ¥936bn ($8.38bn) extra budget for reconstruction following a strong earthquake in the northern island of Hokkaido and severe flooding in western Japan.
Abe’s decision on the tax hike comes amid increasing concern that the trade war between the US and China will hurt the global economy.
The prime minister has twice postponed the tax hike after the last increase, to 8% from 5% in 2014, dealt a blow to private consumption, which accounts for about 60% of the economy.
“This tax hike is only two percentage points, but we have to use our experience from the previous tax hike and make every effort to ease the impact on the economy,” he said.
Abe has entered his final three-year term in office after he won a ruling party leadership vote last month, putting him on track to become Japan’s longest-serving premier.