The much awaited official announcement from Prime Minister Shinzo Abe on Japan’s consumption tax hike was made on Tuesday morning. Despite the unfortunate outcome for previous prime ministers who have done the same, Abe confirmed that he will still give the green light to increase the country’s sales tax from 5% to 8% beginning in April 2014.
“This is Abe’s biggest political decision since he took office,” said Tomoaki Iwai, a professor on Politics at Nihon University in Tokyo. “Japan is in the middle of an epic experiment and his decision is a crucial test of Abenomics.” The country is divided in opinions when it comes to the proposed tax increase. Some agree that it will help the country’s economy, while others don’t. More importantly, the tax increase is expected to help Japan pay off its debts, which is twofold than its GDP. Despite the tax increase, the administration has set a $50 billion stimulus package for businesses with small incomes and will help companies improve investments as well as sustain wages for employees.
With the tax increase pushing through, the government will take 8% on the sales of goods beginning April next year. The 3 percent increase from the current tax dues is also considered a high risk for Abe’s political career. Two previous prime ministers were forced to resign as they allowed tax increases in 1989 and 1997. However, an LDP member believes that failure to raise sales tax may compromise foreign investors. The administration is also banking on potential investments that will flow following the grant for Tokyo to host the 2020 Summer Olympics.