Abe okays sales tax hike to 8%

Abe okays sales tax hike to 8%
Prime Minister Shinzo Abe speaks during a press conference at the Prime Pinister’s Office on Tuesday.

JAPAN - Prime Minister Shinzo Abe announced on Tuesday that the government will raise the consumption tax rate to 8 per cent in April as planned and unveiled a ¥5 trillion (S$64 billion) economic stimulus package designed to soften the the blow on the economy from the tax hike.

The new package includes ¥1 trillion (S$12.8 billion) in tax breaks centering on tax cuts for capital investment. With such tax reductions, the government intends to urge companies to implement pay hikes. The ruling Liberal Democratic Party plans to set up a task force under the direct control of Abe, to launch a national drive on wage increases.

"By helping the nation regain hope, vitality and confidence that the economy will grow, we're determined to pass a sustainable social security system to the next generation. This is the responsibility my Cabinet must fulfil," Abe said at a press conference Tuesday evening. "By securing stable funding with the consumption tax increase, we'll aim to strengthen the social welfare system."

The prime minister said the nation's economy has shown signs of recovery thanks to his "three-arrow" economic measures, dubbed Abenomics. To help the economy break free from more than 15 years of deflation, his administration has focused on putting the economic recovery on a firm footing. "Economic rehabilitation and restoration of fiscal health can be achieved simultaneously. I reached this conclusion after thinking about this matter until the very last minute," he said. "We have no option but to achieve these two goals at the same time."

Asked about the planned second stage of the consumption tax hike to 10 per cent in 2015, Abe said his government will make a decision after comprehensively examining economic conditions and other factors.

The announcement came after the release of new economic reports on the same day. The Bank of Japan's closely watched Tankan survey showed that business sentiment among major manufacturers improved significantly in September, rising eight points from the previous survey to plus 12-the highest reading since the so-called Lehman shock in autumn 2008. The seasonally adjusted ratio of job openings to job seekers in August also rose to 0.95 in August, returning to the level before the Lehman shock.

Backed by such robust economic data, Abe has decided to go ahead with the sales tax increase from 5 per cent to 8 per cent on April 1, believing the nation's economy has been on a steady recovery path. The nation's sales tax will be raised for the second time since April 1997, and the three-percentage-point rate increase is more than the last time.

His Cabinet approved the tax increase and economic package at its meeting Tuesday evening.

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