Swelling corporate earnings appear likely to propel Japan’s tax revenue to the highest in 27 years in fiscal 2018 by lifting salaries and shareholder returns.
In the year ending March 2019, “income tax receipts will increase as wages and stock dividends rise amid continuing economic growth,” according to Masahiro Nishikawa, chief fiscal policy analyst at Nomura Securities. The analyst also looks for consumption tax receipts to climb, helping lift total tax revenue to between 58.1 trillion yen and 58.7 trillion yen ($522 billion and $527 billion).
Surpassing 58 trillion yen would produce Japan’s highest tax revenue since the central government collected 59.8 trillion yen in fiscal 1991 amid the country’s massive asset bubble.
Tax revenue for this fiscal year’s April-September first half rose 5.4% from a year earlier to 16.81 trillion yen, giving the Finance Ministry a high degree of confidence in its full-year projection of 57.71 trillion yen. The economic expansion is expected to boost the figure further next fiscal year.
Japan’s tax revenue generally has grown since Prime Minister Shinzo Abe took office in fiscal 2012, aided by an economic recovery and an increase in the consumption tax rate from 5% to 8%. But spending also has climbed and likely will reach roughly 98 trillion yen in fiscal 2018, which would set a record for the sixth straight year.
A high level of tax revenue could lessen the urgency for the government to curb spending, sparking concerns about fiscal discipline. Some in the ruling coalition already are calling for an increase in public spending for fiscal 2018 even as social security expenditures are expected to continue growing.
In any case, there is no guarantee that tax revenue will meet the projection. In fiscal 2016, the estimate was downgraded by 1.7 trillion yen, forcing the government to cover the deficit by issuing bonds. Actual tax receipts for that year came in around 400 billion yen less than even the downgraded projection.