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Commentary: New cabinet tasked with reining in impact of consumption tax hike

  • September 12, 2019
  • , Asahi , p. 3
  • JMH Translation

By Kazuki Kimura


With regard to the economy, the first task to be handled by the revamped cabinet is to prevent the 10% consumption tax set to be implemented on Oct. 1 from having an adverse impact on the domestic economy. Given that uncertainties are growing over the global economy, it will not be easy for the government to steer the economy.


To prepare for the first consumption tax increase in five and a half years, the government will implement an economic stimulus package worth about 2 trillion yen, which includes point-based refunds for cashless purchases. It will incorporate a similar subsidy program into the fiscal 2020 budget that is currently being compiled.  


Compared to when the consumption tax was raised last time, consumers are not rushing to make last-minute purchases. On the possibility of a steep drop-off caused by a last-minute demand spike in consumption, Minister of Finance Taro Aso, who has remained in his post, predicts that “there won’t be a huge dip.”


The government must also ensure that the introduction of the point program and reduced tax rate will not cause confusion to consumers and businesses. There is a shortage of payment processing devices and cash registers that are compatible with the new tax system.


The overseas economy poses another huge risk. The U.S. and China remain deeply divided over trade as they have been imposing punitive tariffs on each other. Britain’s withdrawal from the European Union (EU) also has yet to be settled. Abe stressed in a press conference [held after the cabinet reshuffle]: “We will keep an eye on any developments and if (risks) emerge, we will deal with them fully and flexibly.”


The strengthening of export controls on products bound for South Korea has provoked strong opposition from South Korea and the aggravated ties between Japan and South Korea are not likely to improve soon. The members of the 14-nation Regional Comprehensive Economic Partnership (RCEP), which include Japan and South Korea, are entering the final stretch of negotiations to clinch a deal by the end of the year. Challenges await new Minister of Economy, Trade and Industry Isshu Sugawara, who has been appointed to a cabinet post for the first time.

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