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Abe Predicts Bump In Tax Revenue As Japan Emerges From Recession
Perspective | 01 February 2013

Japanese Prime Minister Shinzo Abe’s government predicts that tax revenue will exceed cash raised from bond sales for the first time in four years as the nation’s economy emerges from last year’s recession.

The government forecasts 43.1 trillion yen (US$474 billion) of tax revenue for the coming fiscal year, which starts 1 April, compared with 42.85 trillion yen from issuing bonds, Finance Minister Taro Aso said in Tokyo. Total spending is forecast at 92.6 trillion yen.

A rosier outlook for tax receipts may help Abe as he applies short-term fiscal stimulus and prepares for an overhaul of levies designed gradually to rein in a debt burden that’s more than twice the size of the economy. He’s relying on improvements in corporate profits even as the shutdown of most of the nation’s nuclear plants and weakness in the yen drive up energy costs for manufacturers.

“We can’t say that fiscal discipline is fully ensured by this budget,” said Junko Nishioka, chief economist at RBS Securities Japan and a former Bank of Japan official. “Actual tax revenue could fall short of the government’s forecast.”

The government raised its economic growth forecast for the next fiscal year to 2.5 percent from an August estimate of 1.7 percent after declines in the yen and the unveiling of a stimulus package this month. Nominal growth is seen at 2.7 percent, from an earlier forecast of 1.9 percent, the cabinet office said.

Consumer price growth is seen at 0.5 percent. The economy shrank in the second and third quarters of last year. The government’s initial forecast for tax revenue in the 2012 fiscal year was 42.3 trillion yen.

‘Abnormal’ Picture
“We’ve been saying for three years that bond issuance exceeding tax revenue is abnormal,” Aso told reporters. That tax receipts will be higher this time is “a big deal,” he said.

Abe gave a policy speech to the opening session of the Diet, laying out his agenda as he seeks support for coming Bank of Japan personnel appointments and his tax overhaul. He is the first Japanese prime minister to see his popularity rise in his initial month in office since Junichiro Koizumi in 2001, according to a Nikkei newspaper poll that showed voters favor his policy on monetary stimulus.

Income Tax
To raise revenue, Abe’s Liberal Democratic Party proposes increasing the top income tax rate to 45 percent from 40 and the inheritance tax to 55 percent from 50 percent. It also calls for encouraging the transfer of generational wealth by offering reduced tax rates on gifts to children and grandchildren.

Abe’s approval rating rose six percentage points to 68, according to the poll by telephone between 25 to 27 January. The prime minister has the chance to replace Governor Masaaki Shirakawa in April and two deputies in March with policy makers who support monetary stimulus to revive growth.

Abe’s administration has also sought a weaker yen to aid export competitiveness. At the World Economic Forum’s annual meeting in Davos, Switzerland, Japanese Economy Minister Akira Amari said 26 January that the new government is not actively targeting a weaker currency, instead aiming at defeating deflation.

Japan is “absolutely not deviating from global standards,” Amari told “I don’t comment on a foreign-exchange rate because it should be determined by the market. What we do is to implement policies.”

International Concern
Amari spoke at the end of a week in which German and Canadian policy makers joined a worldwide chorus highlighting a recent plunge in the yen as a worry. The currency has declined to its lowest against the dollar since June 2010 as pushes for easier monetary policy.

That strategy has sparked criticism that Abe is trying to weaken the yen to stoke exports, breaching a pledge by Group of 20 economies not to competitively devalue exchange rates for fear of sparking a so-called currency war.

“The Abe administration attaches its highest priority to exiting from prolonged deflation partly accompanied by the appreciation of the yen, and revitalizing the economy,” Amari said.

Some ‘Misunderstandings’
“Many nations said they welcome and support Japan’s new measures,” he told reporters. “Misunderstandings held by a small group of people have been cleared up.”

Speaking on the same Davos panel, Bank of Canada Governor Mark Carney commended Japan’s focus on beating deflation. Carney, who will move to the Bank of England in July, said Amari had been “very clear and the Bank of Japan is clear in terms of the policy focused on a domestic inflation target.”

German Chancellor Angela Merkel said on 24 January in Davos that “I can’t say I’m completely free of worry when I look at Japan right now.” Canadian Finance Minister Jim Flaherty told Bloomberg Television’s Erik Schatzker three days ago that he’s spoken to Japan Finance Minister Taro Aso about exchange rates.

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