Japan’s Abe Confirms Oct. 2019 Consumption Tax Hike

October 16, 2018

Tokyo- Prime Minister Shinzo Abe confirmed Monday that the government will raise the consumption tax from the current 8 pct to 10 pct in October 2019 as planned, to bolster Japan's social security system.

He confirmed the policy at an extraordinary cabinet meeting. The prime minister also instructed ministers to draw up measures to prevent adverse effects on the economy from the tax hike.

"We will take all possible measures to prevent the economy from being badly affected," Abe stressed, adding that "emergency and special measures" will be financed by the government's fiscal 2019 and 2020 budgets.

"We aim for a big shift to a social security system for all generations that allows both young and old people to live with peace of mind, and at the same time, we will steadily proceed with fiscal consolidation," he said.

Based on lessons from the past consumption tax hikes, the government is considering ways to curb a last-minute surge and an ensuing plunge in consumption that may result from the tax increase.

The government is looking at providing public financial support for a program to grant shopping points worth 2 pct of the purchases for cashless shopping at small retailers, in order to help offset the 2-percentage-point hike. It is also considering subsidies or tax breaks for automobile and housing purchases.

Meanwhile, the government plans to keep the current 8 pct for food and drinks excluding alcohol products and restaurant items. It will help retailers renew their cash registers to handle the two different tax rates.

Part of the revenues from the tax increase is to be used for a program to realize free-of-charge child education and care services for many families. The government expects the measure will also ease the tax hike's impact on consumption.

Initially, the government planned to raise the consumption tax to 8 pct in April 2014 and 10 pct in October 2015, based on an agreement among the then ruling Democratic Party of Japan, the Liberal Democratic Party and Komeito in June 2012, before the LDP-Komeito alliance returned to power in December that year.

After carrying out the first hike as scheduled, however, the Abe administration postponed the second one twice.

Abe has since repeatedly stated that there would be no more delay unless there is an event as devastating as the 2008 financial crisis.

This policy remains "totally unchanged," Chief Cabinet Secretary Yoshihide Suga told a news conference Monday. He did not rule out the possibility of an additional delay. Jiji Press