Japan’s Abe set to unveil $50 billion stimulus ahead of April’s sales tax hike
TOKYO — Stimulus vs. debt reduction. That big question has tormented advanced economies in recent years, as they juggle attempts to lift sluggish growth with curbing unsustainable borrowing. Japanese Prime Minister Shinzo Abe this week will try to have it both ways.
Brushing off warnings that Japan’s nascent economic recovery, stirred by his own package of bold stimulus policies, is still too delicate to withstand austerity measures, Mr. Abe is set to announce Tuesday a significant tax increase as his first major step toward tackling the nation’s massive government-debt burden.
As a hedge, however, the increase will be paired with an economic-stimulus package designed to counter any negative impact. Indeed, the package is so costly that it would wipe out most of the revenue to be generated by the tax increase in the first year.
Specifically, the higher consumption tax will shift ¥7.5 trillion, about $75 billion, or roughly $600 per person, from the hands of consumers into the national coffers, while the stimulus package injects at least ¥5 trillion—and possibly as much as ¥7 trillion—back into the economy, economists say.
“It’s just silly to collect money and then spend it right away to prop up the economy,” Keiichiro Asao, a senior lawmaker of the opposition Your Party, said in an interview. “If a tax hike hurts the economy, why do you even bother to do it in the first place?”
The decision to go ahead with the tax increase on April 1, the first phase of a two-step plan adopted by the previous administration to double the tax rate from the current 5% by the fall of 2015, is the prime minister’s attempt to reassure bond investors that Japan’s swollen debt is under control. With government borrowing more than twice the size of its gross domestic product, the Japanese government is the most indebted among its peers in advanced economies.
