Japan raises sales tax to 10% amid signs economy weakening

The tax hike will put an estimated additional burden on Japanese households of more than ¥2 trillion ($18 billion). (Kyodo News via AP)
Updated 01 October 2019

Japan raises sales tax to 10% amid signs economy weakening

  • Officials say ample measures taken to minimize the impact of the hike after previous tax increases
  • Sales tax increase covers most goods and services

TOKYO: Japan’s national sales tax was raised to 10 percent from 8 percent on Tuesday, amid concerns that the long-delayed move could derail the fragile growth path of the world’s third largest economy.
Officials said ample measures were taken to minimize the impact of the hike after previous tax increases — a 2-point increase to 5 percent in 1997 and another to 8 percent in 2014 — brought on recessions.
Prime Minister Shinzo Abe postponed this hike twice but said it was unavoidable given rising costs for elder care and a growing national debt as the population ages and shrinks. After decades of fiscal deficits that have taken the debt to more than twice the size of the economy, Abe has promised a return to balance by 2025, but that will require growth to be sustained at a healthy pace.
The sales tax hike coincided with the release of data showing business sentiment among large manufacturers worsening in September to its worst level since 2013.
The result was better than expected, but the outlook is forecast to deteriorate further by December’s quarterly report of the Bank of Japan’s survey, called the “tankan.”
“Particularly affected are producers of basic materials, reflecting recent commodity market movements, as well as producers of general-purpose and production machinery, who are exposed to risks posed by recent re-escalation of US-China trade frictions,” Oxford Economics said in a commentary.
Other data released this week have shown industrial output decreasing in August, while unemployment remained at a 26-year low of 2.2 percent.
The economy expanded at an annual pace of 1.8 percent in April-June, faster than anticipated. But slowing exports and rising prices for oil are expected to drag growth lower in coming months.
The sales tax increase covers most goods and services from clothes, electronics to transportation and medical fees, but the government has sought to soften its impact with tax breaks for home and car purchases. It also kept the tax for groceries unchanged for low-income households and is providing free pre-school education to families.
“We’ll take expeditious and utmost efforts to ward off any risk of a downward swing in the economy,” Chief Cabinet Secretary Yoshihide Suga said on the eve of the tax hike.
Analysts say the tax hike poses a deflationary risk at a time of growing uncertainty over trade tensions between the US and China.
That’s after years of ultra-loose monetary policy aimed at trying to convince businesses and consumers to spend more money. More than six years after Bank of Japan Gov. Haruhiko Kuroda launched his “big bazooka” injections of billions of dollars of cash into the economy, aimed at prying the country out of its deflationary doldrums.
“Considering the current economic conditions, the timing is bad,” said Toshihiro Nagahama, chief economist at Dai-ichi Life Research Institute.
He noted that the economy has slowed since late last year and that demand generated by the construction boom for the Tokyo 2020 Olympics is fading. The fear is that might undo years of efforts to escape a deflationary rut where falling prices due to slack demand depress investment, a main driver of growth.
The tax hike will put an estimated additional burden on households of more than ¥2 trillion ($18 billion).
The exceptions and incentives built into the new sales tax regime are causing confusion. For instance, purchases “to go” at Starbucks Coffee outlets are still taxed at 8 percent, while customers choosing to dine in have to pay 10 percent.
Businesses are adapting with price cuts and rewards for cashless payments to attract customers. So, economists said there was not a huge rush to beat the increase. That may mean the higher tax’s impact will be less severe than the blows of previous hikes.


Davos 2020: Ministers, top executives in Saudi delegation to WEF

Klaus Schwab, founder and executive chairman of the World Economic Forum, center, his wife Hilde, left, and President of the European Commission Ursula von der Leyen are seated during the opening session of the 50th annual meeting of the World Economic Forum, in Davos, Switzerland, Monday, Jan. 20, 2020. (AP)
Updated 21 January 2020

Davos 2020: Ministers, top executives in Saudi delegation to WEF

  • A large KSA contingent comprising 55 senior figures will be attending the WEF in Davos
  • Around 3,000 leaders from business, public policy, culture and technology will be in attendance

DAVOS: Some 3,000 leaders from the worlds of business, public policy, culture and technology are due to arrive in the Alpine town of Davos for the annual meeting of the World Economic Forum (WEF), which begins on Tuesday.

The meeting this year — under the theme “stakeholders for a cohesive and sustainable world” — is the 50th time the annual meeting has been held in the Swiss resort, but it comes at a time of growing global tensions over climate change and geopolitical confrontation.

Last week, the WEF published its annual global risk report, one of the gloomiest ever, with global experts concerned about accelerating environmental damage and potential political flashpoints in several parts of the world.

Saudi Arabia is sending a top-level delegation to the meeting, headed by Dr. Ibrahim bin Abdulaziz Al-Assaf, Minister of State and Member of the Cabinet, with some 55 senior figures.

They include ministers and senior executives from industry, finance and the economy, in addition to many other Saudi participants attending for bilateral meetings and support roles, as well as the event’s legendary networking.

Prince Abdulaziz bin Salman will attend his first WEF annual meeting since he was named energy minister last year. Deputy Defense Minister Prince Khalid bin Salman will also attend.

Amin Nasser, CEO of Saudi Aramco, will attend for the first time as head of a publicly listed company following the oil giant’s successful initial public offering (IPO) last year.

Relations between Saudi Arabia and the WEF have grown stronger as the Kingdom’s ambitious Vision 2030 strategy has accelerated.

Later this year, Riyadh will play host to a meeting of the WEF under the banner of the Centre for the Fourth Industrial Revolution, the brainchild of Klaus Schwab, WEF founder and executive chairman.

“On the eve of its G20 presidency, we welcome the Kingdom of Saudi Arabia … to shape those technologies in a way that serves society,” Schwab said.

In contrast with the strong participation from Saudi Arabia and other Gulf countries, notably the UAE, Iran has pulled out of the meeting altogether because of the heightened political tensions in the region following the killing of the country’s top general, Qassem Soleimani, in a US strike earlier this month.

President Donald Trump is leading a big American delegation to the event, the second time he has attended Davos since moving into the White House, having missed last year. He is due to deliver a keynote address on the opening day of the meeting.

Climate change and its consequences look certain to be a big topic in snowy Davos, where the temperature rarely rises above freezing.

Greta Thunberg, the young environmental campaigner, is also taking part in sessions, including one on “averting a climate apocalypse.”

She has hiked over the Alps to get to Davos, having pledged not to use environmentally damaging public transport.

Davos 2020 is split across seven key themes: Healthy futures, how to save the planet, better business, beyond geopolitics, technology for good, fairer economies, and society and the future of work.

On climate change, the WEF said: “The Earth is getting hotter, the ice is melting, the oceans are rising, and they’re filling up with plastic. We’re losing species, building up greenhouse gases, and running out of time. It’s easy to feel downhearted.”

On rising geopolitical tensions, it added: “We need to move from geopolitics and international competition to a default of consummate global collaboration. Nations are going to have to change.”

In an effort to change the event’s image as a showy gathering of the global elite, often traveling in helicopters and limousines to the Alpine resort, the WEF has offered to pay half of the first-class rail fare from anywhere in the world to Davos.