Research and analysis

Japan - new stimulus package and draft budget proposals

Published 5 January 2015

This research and analysis was withdrawn on 22 May 2019

This page has been withdrawn because it is out of date. For up to date information see Overseas Business Risk Japan.

0.1 Summary

Japan announces a $29bn stimulus package. Coalition parties issue draft proposals for their 2015 budget in an attempt to encourage economic growth and make Japan more competitive. Both are critical for Japan.

0.2 Detail

Stimulus package

On 27 December, the re-elected Japanese Government approved a stimulus package worth 3.5 trillion Yen (29bn USD). It is intended to be funded by reallocating underspends during FY 2013 and higher than expected tax revenues in FY 2014 rather than additional borrowing. Approximately 1.3 trillion yen (10.8bn USD) is earmarked to support consumers and companies, 600 billion yen (5 bn USD) is for local communities and 1.7 trillion yen (1.4bn USD) for disaster prevention and recovery.

Specific commitments include:

• 420 billion Yen for subsidies to areas facing economic stagnation and depopulation;

• 250 billion Yen for regional merchandise coupons or to subsidise fuel for low income households;

• 170 billion Yen to encourage migration from built up areas to other regions; and

• 300 billion Yen for public sector works.

• Draft Budget proposals

The ruling coalition’s tax committee have also released draft proposals for Japan’s 2015/16 budget this week. Such proposals are usually accepted, without change, by the Cabinet and the Japanese Parliament who will be meeting to pass the FY15 budget in January.

Key measures proposed include:

• Corporation tax cuts: Japan has a very high level of corporation tax (34.62%) compared to other G7 economies. The Committee proposes to reduce this by 3.29% over two years to 32.11% by FY16(2.51% in FY15);
• Reducing certain tax allowances such as the level of losses than can be carried forward (from 80% of reported income to 50%) or that can be offset as R&D;
• Introducing child Nippon Individual Savings Accounts (based on UK ISAs);
• New Tax breaks for child-rearing costs and expanding existing exemptions for housing and education funds.
• New tax benefits to encourage grandparents to transfer funds to grandchildren.
• Tax breaks for environmentally friendly vehicles and for buying and installing solar panels will also be extended.

0.3 Comment

The reduction in corporation tax had been widely expected and Abe wants to reduce it to between 20-30%. The Government hopes that the net effect of these measures will make Japan a) a more attractive destination for FDI and b) increase corporate profitability to encourage Japanese firms to raise wages in real terms as called for by PM Abe and BOJ Governor Kuroda last week.

The stimulus package directly targets a number of regions which have not felt the benefits of Abenomics. The Government will be hoping that that the package helps ensure its popularity in local elections being held nationwide this April. However, while it may provide a short term boost to the economy, past experience leads us to doubt how effective the package will be. Given criticism of previous packages for focussing too heavily on construction works (at a time when Japan lacks construction workers), it is interesting that a significant proportion will be targeted at low-income households. This also reflects the fact that real wages fell under Abe’s first term

0.4 Disclaimer

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