Japan raises sales tax to 10% amid signs economy weakening

The tax hike will put an estimated additional burden on Japanese households of more than ¥2 trillion ($18 billion). (Kyodo News via AP)
Updated 01 October 2019

Japan raises sales tax to 10% amid signs economy weakening

  • Officials say ample measures taken to minimize the impact of the hike after previous tax increases
  • Sales tax increase covers most goods and services

TOKYO: Japan’s national sales tax was raised to 10 percent from 8 percent on Tuesday, amid concerns that the long-delayed move could derail the fragile growth path of the world’s third largest economy.
Officials said ample measures were taken to minimize the impact of the hike after previous tax increases — a 2-point increase to 5 percent in 1997 and another to 8 percent in 2014 — brought on recessions.
Prime Minister Shinzo Abe postponed this hike twice but said it was unavoidable given rising costs for elder care and a growing national debt as the population ages and shrinks. After decades of fiscal deficits that have taken the debt to more than twice the size of the economy, Abe has promised a return to balance by 2025, but that will require growth to be sustained at a healthy pace.
The sales tax hike coincided with the release of data showing business sentiment among large manufacturers worsening in September to its worst level since 2013.
The result was better than expected, but the outlook is forecast to deteriorate further by December’s quarterly report of the Bank of Japan’s survey, called the “tankan.”
“Particularly affected are producers of basic materials, reflecting recent commodity market movements, as well as producers of general-purpose and production machinery, who are exposed to risks posed by recent re-escalation of US-China trade frictions,” Oxford Economics said in a commentary.
Other data released this week have shown industrial output decreasing in August, while unemployment remained at a 26-year low of 2.2 percent.
The economy expanded at an annual pace of 1.8 percent in April-June, faster than anticipated. But slowing exports and rising prices for oil are expected to drag growth lower in coming months.
The sales tax increase covers most goods and services from clothes, electronics to transportation and medical fees, but the government has sought to soften its impact with tax breaks for home and car purchases. It also kept the tax for groceries unchanged for low-income households and is providing free pre-school education to families.
“We’ll take expeditious and utmost efforts to ward off any risk of a downward swing in the economy,” Chief Cabinet Secretary Yoshihide Suga said on the eve of the tax hike.
Analysts say the tax hike poses a deflationary risk at a time of growing uncertainty over trade tensions between the US and China.
That’s after years of ultra-loose monetary policy aimed at trying to convince businesses and consumers to spend more money. More than six years after Bank of Japan Gov. Haruhiko Kuroda launched his “big bazooka” injections of billions of dollars of cash into the economy, aimed at prying the country out of its deflationary doldrums.
“Considering the current economic conditions, the timing is bad,” said Toshihiro Nagahama, chief economist at Dai-ichi Life Research Institute.
He noted that the economy has slowed since late last year and that demand generated by the construction boom for the Tokyo 2020 Olympics is fading. The fear is that might undo years of efforts to escape a deflationary rut where falling prices due to slack demand depress investment, a main driver of growth.
The tax hike will put an estimated additional burden on households of more than ¥2 trillion ($18 billion).
The exceptions and incentives built into the new sales tax regime are causing confusion. For instance, purchases “to go” at Starbucks Coffee outlets are still taxed at 8 percent, while customers choosing to dine in have to pay 10 percent.
Businesses are adapting with price cuts and rewards for cashless payments to attract customers. So, economists said there was not a huge rush to beat the increase. That may mean the higher tax’s impact will be less severe than the blows of previous hikes.


Abu Dhabi carrier Etihad launches more fuel-efficient Boeing 787 Dreamliner

Updated 13 min 38 sec ago

Abu Dhabi carrier Etihad launches more fuel-efficient Boeing 787 Dreamliner

  • Etihad’s CEO Tony Douglas described the aircraft as a flying laboratory for testing that could benefit the entire industry
  • This year, Etihad flew the world’s first passenger flight using sustainable biofuel made from a plant that grows in saltwater

DUBAI: Abu Dhabi’s flagship carrier Etihad Airways announced on Monday it is launching one of the world’s most fuel-efficient long-haul airplanes as the company seeks to save costs on fuel and position itself as a more environmentally-conscious choice for travelers.
Etihad’s “Greenliner” is a Boeing 787 Dreamliner that will depart on its first route from Abu Dhabi to Brussels in January 2020. Etihad’s CEO Tony Douglas described the aircraft as a flying laboratory for testing that could benefit the entire industry.
With fuel costs eating up around a quarter of airline spending, Douglas said the goal of the Greenliner is to be 20 percent more fuel efficient than other aircraft in Etihad’s fleet.
“This is not just a box-ticking exercise,” he told reporters at the unveiling of the initiative at the Dubai Airshow alongside executives from Boeing.
Douglas said the aircraft “not only makes sense economically from a profit and loss account point of view, but because it also directly impacts the CO2 because of the fuel burn.”
Etihad has reported losses of $4.75 billion since 2016 as its strategy of aggressively buying stakes in airlines from Europe to Australia exposed the company to major risks.
Despite its financials, the airline continues to be among the most innovative.
This year, Etihad flew the world’s first passenger flight using sustainable biofuel made from a plant that grows in saltwater. It also became the first in the Middle East to operate a flight without any single-use plastics on board to raise awareness of the effects of plastic pollution.
Aviation accounts for a small but rapidly growing share of greenhouse-gas emissions — about 2.5 percent worldwide. But forecasters expect air travel to grow rapidly in the coming years.
Etihad says it plans to make the Greenliner a “social media star” to bring under sharper focus its developments and achievements worldwide. Douglas said anything that Eithad learns with Boeing from this aircraft’s operations will be open domain knowledge “because it’s about moving the industry forward in a responsible fashion.”
“We’re like a millennial and like all good millennials, they’re really focused on the environment and the sustainability agenda,” Douglas said, referring to Etihad’s 16 years in operation.
The Greenliner will be the only aircraft of its kind in Etihad’s fleet of Dreamliners. The company currently has 36 of the 787s in its fleet with plans to operate 50.
“This is a small step today, but in a very, very long journey,” Douglas said.