In a shell-game type move typically reserved for Washington D.C.’s budget, Japanese Prime Minister Shinzo Abe is set to announce a simultaneous tax increase and fiscal stimulus in what appears to be a carousel of money.
The much anticipated consumption tax increase from 5% to 8% will be in effect in the Spring of 2014 just as planned. The move will allow Japanese officials to portray themselves as fiscally responsible and taking a hard line on the country’s mounting debt. Revenue from the tax hike should generate an additional 7.5 trillion yen for the central government.
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From the other side of his mouth, Shinzo Abe will announce a plan that includes tax cuts and incentives for corporations as well as tax breaks tied to mortgages. There is no clarity yet on the home-buying incentive, but previous programs have heavily encouraged new home buying, leaving the country struggling with a massive overhang of second-hand homes. In all the stimulus totals about 5 trillion yen or approximately two-thirds of the tax hike.
The central government’s Council on Economic and Fiscal Policy, which includes Shinzo Abe , met yesterday to make a final decision on the plans.
“Comparing the two, the risk of raising the consumption tax rate as scheduled is estimated to be smaller if measures are taken to first cope with downside risk to growth and then raise the growth potential of the economy and take it to a path toward strong growth led by private-sector demand through sufficient budgetary and tax measures as well as deregulation and reforms,” the council said in a statement.