Japan’s $50 billion stimulus expected to offset impact from sales tax hike: Poll
(Reuters) – Japan’s economy will remain on track as the government prepares a 5 trillion yen ($50.6 billion) stimulus package to offset the drag from a sales tax increase scheduled for next April, a Reuters poll showed.
Economists expect the majority of the stimulus package to be spent on infrastructure and tax breaks for the corporate sector, the poll conducted October 10-15 showed.
It also concluded that Prime Minister Shinzo Abe’s government should take additional steps to ease regulations and encourage new markets for goods and services to lift the country’s potential growth rate.
“Although details of some spending measures will be determined in December, we estimate these fiscal measures will largely offset the negative impact from the consumption tax hike,” Nomura Securities economists said in a note to clients.
“We expect the policy focus to shift to the growth strategy, which the government will start to enact in the next Diet (parliamentary) session that convened on 15 October.”
The world’s third-largest economy is forecast to grow 2.8 percent in the fiscal year to March 2014, a Reuters poll of 26 economists showed. That was unchanged from last month’s poll.
Growth is expected to slow to 0.9 percent in the following fiscal year as an increase in the sales tax in April to 8 percent from 5 percent will temporarily slow consumer spending.
By comparison, economists last month said growth would slow to 0.7 percent next fiscal year.
In fiscal 2015, the economy will grow 1.1 percent, slower than 1.5 percent growth predicted last month.
Japan’s government earlier this month agreed the stimulus package, which will include tax breaks for home purchases and a small cut in the corporate tax rate.
However, the government still has to decide how to spend more than half of the money and will not announce final details until early December.
The increase in the sales tax, which is earmarked for welfare and healthcare spending, is the biggest effort in nearly two decades to contain a public debt that, at more than twice the nation’s annual economic output, is the biggest in the world.
