Corporate Japan to hunker down and save gains from tax cut: Reuters poll

Fri Oct 18, 2013 8:29am EDT
 
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By Tetsushi Kajimoto and Izumi Nakagawa

TOKYO (Reuters) - More than 40 percent of Japanese companies surveyed have no plans to spend or invest funds generated by an expected cut in the corporate tax rate, a reflection of the deep-seated risk-aversion in corporate Japan and a challenge to the success of Abenomics.

The result of the Reuters Corporate Survey of 400 companies taken in late September and early October stands in contrast to other recent indicators of a thawing in corporate risk-aversion on signs of continued recovery in Japan's economy.

In the monthly Reuters survey, 30 percent of companies said they would bank any savings from a lower corporate tax rate and build up internal reserves, which now total more than $2 trillion for Japan's corporations taken as a whole.

Another 12 percent of companies responding said they would use any cash generated by a corporate tax cut pledged by Prime Minister Shinzo Abe to offset the expected higher costs from a sales tax increase set to take effect in April.

Abe's government is seeking an early end to a corporate tax levy that has funded rebuilding from the 2011 earthquake and tsunami. That step is projected to save companies some 900 billion yen ($9.1 billion) as part of a stimulus package worth more than 5 trillion yen to be compiled in December.

Most companies surveyed by Reuters said a corporate tax cut would be positive for earnings: 54 percent said it would boost profit, while 46 percent said it would have no effect.

But only a minority of companies surveyed said they were ready to use the additional earnings in the areas most crucial to the success of the prime minister's "Abenomics" economic program - investment in plants and equipment and higher wages for Japanese workers.

Only 5 percent of companies responding said they would use the additional savings to raise wages. Another 5 percent said they intended to use the savings from a tax cut to increase hiring.   Continued...

 
Japan's Prime Minister Shinzo Abe attends the opening event of the Tokyo International Film Festival in Tokyo October 17, 2013. REUTERS/Toru Hanai