Prime Minister Shinzo Abe sees raise – already delayed twice over fears it could derail the fragile economy – as essential to finance snowballing social security expenditure in the rapidly ageing society
The world’s third-largest economy has one of the highest debt-to-GDP ratios among rich nations. Much of it is held domestically at low interest rates, allowing Japan to avoid a Greek-style cash crunch.
Critics say that raising the tax from eight to 10 per cent is crucial to finance snowballing social security expenditure – especially medical fees – in the rapidly ageing society.
The increase – originally planned for October 2015 – has been pushed back twice due to fears it could derail the fragile economy.
Tokyo’s last tax rise in April 2014 was blamed for pushing Japan into a brief recession.
This time, Abe is confident that with new government subsidies launched alongside, he can avoid the sharp drop in consumer spending that hit the economy after the 2014 hike.
Abe recently said that reforming the country’s social security system – pension and national health insurance, among others – was “the biggest challenge” ahead and pledged to tackle the issue.
Abe has seen the planned tax hike as increasingly necessary to improve the country’s social security system amid the rapid greying of Japanese society. Part of the expected revenue from the tax raise will go to expanding childcare support.
The Cabinet meeting is also expected to approve a supplementary budget of around 940 billion yen (US$8.4 billion) to assist reconstruction in areas hit by heavy rains and earthquakes.
