Tags: japan | stimulus | billions

Japan Seen Needing $47 Billion Stimulus to Balance Next Tax Bump

Thursday, 11 Sep 2014 07:24 PM

Prime Minister Shinzo Abe will need a 5 trillion yen ($47 billion) fiscal stimulus package to cushion the impact of a further increase in Japan’s sales tax, a survey by Bloomberg News shows.

The median from estimates of 13 economists in the survey is similar to the extra spending Abe prepared for the earlier bump in the levy to 8 percent in April.

Finance Minister Taro Aso has indicated the government will prepare a back-up plan to bolster the world’s third-biggest economy as speculation mounts that stimulus will be needed before a planned hike in the tax to 10 percent in October next year. Japan’s economy contracted by the most in more than 5 years in the second quarter after the April move.

“The downside bias to the economy may be strong this quarter,” said Junko Nishioka, chief Japan economist at Royal Bank of Scotland Group Plc in Tokyo and a former central bank official. “Abe’s government may have a similar sized economic package to the one it had last year to prop up the economy and realize a further tax hike.”

The estimate of 5 trillion yen is higher than estimate of 3 trillion in a previous poll in July, conducted before the worse- than-expected second quarter gross domestic product data was released.

The government will proceed with the planned tax increase, according to 16 of 18 economists in the survey, which was conducted between Sept. 5 and Sept. 10.

Twelve of 15 respondents said that growth would need to be at least an annualized 1.5 percent this quarter for Abe to proceed with the bump in the levy. The economy will expand 3.4 percent in the period, according to the survey.

Growth Rebound

Whether the economy has returned to its growth path in this quarter is the important factor in the decision on the increase, Abe said yesterday in a radio interview.

There was a risk that a failure to raise the tax could damage market confidence in the government’s effort to rein in its debt burden, now the world’s heaviest, central bank governor Haruhiko Kuroda said last week.

“There is a way to deal with the consequences of proceeding with the sales-tax increase,” Kuroda said. “Dealing with the risks that may arise from not raising it would be difficult. The probability of these appearing is low, but the impact could be huge and the risks would be big.”

Japan’s gross domestic product shrank an annualized 7.1 percent in the three months through June, the most since the first quarter of 2009, a government report showed on Sept. 8.

 

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Prime Minister Shinzo Abe will need a 5 trillion yen ($47 billion) fiscal stimulus package to cushion the impact of a further increase in Japan's sales tax, a survey by Bloomberg News shows.The median from estimates of 13 economists in the survey is similar to the extra...
japan, stimulus, billions
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2014-24-11
Thursday, 11 Sep 2014 07:24 PM
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