TOKYO: Japan government approved a record spending budget for the fiscal year beginning on April 1, 2015, which it expects to be offset by a 5.4 percent rise in tax revenue to JPY54.5 trillion (USD464.5bn).
Through its new Budget, the Government expects to be able to deploy increased tax revenues from the sales tax increase implemented on April 1 last year, which raised the rate of Japan’s value-added tax from five percent to eight percent, as well as increased tax collections from higher corporate profits. This will fund an increase in welfare spending and a reduction in Japan’s fiscal deficit.
With the postponement of the second consumption tax increase, which had been set to take effect in October 2015, the Government appears to be relying on a strengthening economy to increase wages and profits and elevate personal and corporate income tax collections, buoyed by lower oil prices and the depreciation of the yen.
With higher corporate profits, Japan considers that it can proceed with the announced 2.51 percent cut to its high, headline corporate tax rate, lowering it to 32.11 percent in the 2015 fiscal year. A further cut to 31.33 percent is then planned for 2016, with an ultimate target of reducing the rate to below 30 percent.
While much of the lost revenue from the rate reduction will be offset by broadening the corporate tax base, it is estimated that the 2015 rate reduction will still cost around JPY300bn in lost revenue.
Overall, while more than 38 percent of the 2015 Budget will need to be financed by increased government debt, the Government is also hoping that a JPY4 trillion cut in Japan’s primary fiscal deficit to JPY13.4 trillion will show that it can maintain its previous promise of achieving a primary balance by 2020. A concrete plan to meet that target is expected from the Government later this year.
