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Politics

Japan committed to October 2019 tax hike, draft document shows

Government plans economic stimulus in fiscal 2019 and 2020 to absorb shock

The Japanese government’s draft policy guidelines include measures aimed at contending with the impact of a consumption tax hike on consumer demand.

TOKYO -- Draft economic policy guidelines being compiled by the Japanese government will call for the consumption tax rate to be raised to 10% from the current 8% in October 2019 and the introduction of economic stimulus measures using the initial budgets for fiscal 2019 and 2020, Nikkei learned Monday.

The updated fiscal rehabilitation program, which will be incorporated into the Basic Policy on Economic and Fiscal Management and Reform, does not include substantial cuts in expenditure.

The draft will be finalized in mid-June after opinions have been sought from government officials and other members of the ruling coalition.

The document recommends the implementation of "an increase in consumption tax to 10%, while taking utmost care to control the expected demand fluctuations." The previous guidelines did not mention policy related to a tax hike.

When consumption tax was raised to 8% from 5% at the beginning of April 2014, demand spiked as consumers rushed to make purchases before the tax burden rose and fell sharply afterward.

In anticipation of similar fluctuations, the draft guidelines call for "flexible responses" that would be funded through initial budgets for the fiscal year of the hike and the following year.

Specifically, the document proposes expanding tax cuts on real estate and auto purchases. In addition, a planned blanket introduction of free preschool and day care services would be brought forward by six months to October 2019.

The draft sets the target date for balancing the primary budget, which excludes debt servicing costs and new bond issuances, in fiscal 2025, and states that work toward that goal should start in fiscal 2019.

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