June 5, 2018 / 9:31 AM / 9 months ago

UPDATE 1-Japan policy strategy review calls for incentives to offset sales tax hike

(Adds economist’s quote)

By Stanley White

TOKYO, June 5 (Reuters) - Japan’s government needs to carry out a nationwide sales tax hike as scheduled in October 2019 but should introduce some incentives for car and home purchases to lessen the impact, an annual review of policy approved on Tuesday showed.

The government should include such incentives in the annual budget for fiscal 2019 and fiscal 2020, the policy review showed.

The government will aim to improve public finances by returning to a primary budget surplus in fiscal 2025, according to the review, which was approved at a meeting of the government’s top advisory panel on Tuesday.

The policy review also proposed a new visa scheme to open the door to more foreign workers with specific skills as the country grapples with a labour shortage due to an ageing population and a low birth rate.

Around the middle of every year the Japanese government approves a strategy review that lays out the priorities for fiscal and economic policy for the following year and beyond.

“The government has offered some incentives for durable goods purchases before, and these steps don’t guarantee fiscal discipline,” said Norio Miyagawa, senior economist at Mizuho Securities.

“We need to raise the sales tax, but fiscal discipline is something that the government never quite seems to tackle head on.”

The government should use a combination of tax breaks and new spending to support purchases of cars and homes when it raises the nationwide sales tax to 10 percent from 8 percent on October 2019 to pay for welfare spending, according to the policy review.

It did not say how large the incentives should be, meaning it is up to policymakers and bureaucrats to flesh out the details when they start compiling next fiscal year’s budget.

Prime Minister Shinzo Abe’s government already plans to exempt alcohol and some food products from the sales tax increase.

Extending tax breaks or some form of subsidies for car and home purchases, even if only for a limited time, could raise concern that public finances will not improve much.

Japan’s public debt burden is already the worst in the world at more than twice the size of the economy.

The government has set itself a deadline of fiscal 2025 to achieve a primary budget surplus, but this is a five year delay from the government’s previous deadline, showing how easy it is for fiscal discipline targets to slip.

The recommendation for a new visa scheme is an acknowledgement of demands from companies in construction, transportation, agriculture, and elderly care to gradually allow more foreign workers into the country.

Labour shortages have become so acute that some businesses are shortening operating hours or asking older workers to say on after retirement age. (Reporting by Stanley White; Editing by Chris Gallagher and Kim Coghill)

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