TOKYO (Reuters) - Japanese Prime Minister Shinzo Abe is considering introducing new tax breaks aimed at encouraging companies to boost wages and accelerate capital expenditure to spur economic growth, government and ruling party sources told Reuters on Friday.
Abe is arranging to unveil the tax incentives at a news conference on Monday at which he is also expected to announce a snap election next month, the sources said on condition of anonymity because they are not authorised to speak to media.
Wage increases and greater capital spending are seen playing a crucial role in promoting Abe’s campaign to invest in human resources and enhance innovation on productivity.
However, cautious Japanese firms are sitting on a record cash pile and remain hesitant to splurge, keeping the economy back from a virtuous cycle of private sector-led growth.
An idea of further lowering the effective corporate tax rate from the current 29.97 percent is also being floated, the sources said.
But many in the government doubt it would effectively boost business investment given that many companies are piling up internal reserves, they added.
Other government sources have told Reuters Abe will pledge to use some of the revenue from a scheduled sales tax hike in 2019 to fund spending on education and child care.
That would force the government to delay the timing for achieving its fiscal consolidation target, a set-back for a country saddled with the world’s heaviest public debt at twice the size of its economy.
Reporting by Takaya Yamaguchi and Takashi Umekawa; Writing by Tetsushi Kajimoto; Editing by Jacqueline Wong