Japan Inc backs sales tax hike delay though frets about impact: Reuters poll

Tue Jun 21, 2016 7:08pm EDT
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By Tetsushi Kajimoto

TOKYO (Reuters) - Most Japanese firms support the government's decision to put off a hike in the national sales tax by more than two years due to weakness in the economy, a Reuters poll showed, though corporate concern about the negative impact of the delay was also high.

A sales tax hike to 10 percent from 8 percent is seen as crucial to curbing Japan's public debt - the heaviest among industrial nations - and for funding ballooning social welfare costs, but worries about the impact of China's slowing growth had mounted.

Prime Minister Shinzo Abe's decision this month to postpone the hike by two and a half years to October 2019 found favor with 61 percent of firms while the rest were against, the Reuters Corporate survey showed.

"The economy would deteriorate if the tax hike was not postponed, therefore fiscal consolidation would become out of the question," wrote a manager at a firm in the auto sector.

The survey, conducted June 6-16, showed that 26 percent of companies thought the delay would help consumer spending and lift sales while 30 percent thought it would help speed up Japan's efforts to escape from deflation.

But underscoring the Catch-22 situation that Japan has found itself in, just as many cited concerns about the delay. Thirty-two percent of firms said consumer spending could stagnate on uncertainty about social security while 26 percent said an escape from deflation could be hindered as firms would find it harder to raise prices.

Another 8 percent said they were concerned about funding costs rising if Japan were to suffer a potential credit rating downgrade.

The question about the impact of the postponed tax hike allowed multiple answers, asking companies to choose up to two concerns. Around 240 firms in the poll of 509 big and medium-sized companies answered questions on the tax.   Continued...

A shopper looks at items outside a discount store at a shopping district in Tokyo, June 18, 2015.   REUTERS/Yuya Shino/File Photo