Erica Yokoyama
·3 min read
(Bloomberg) -- Japanese Prime Minister Fumio Kishida’s $35 billion plan to shore up support with a one-time tax rebate looks unlikely to spark either a strong resurgence of consumer spending or a jump in his opinion poll ratings ahead of a September party leadership election.
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Under the plan, about 95 million taxpayers earning ¥20 million ($127,300) or less annually, along with their dependents, are slated to receive rebates of ¥40,000 per person starting from June.
But a long-running ruling party slush fund scandal has overshadowed the rebates, while the phasing out of energy subsidies will dilute the impact of the extra cash for households. That lessens Kishida’s chances of gaining a popularity bump that makes him a shoo-in to stay on as party leader, or the confidence to call an early national election this summer.
“The timing was likely aimed at pleasing voters before the Liberal Democratic Party vote, or holding a general election before the party race,” said Mieko Nakabayashi, a professor at Waseda University. “Prices are rising and people aren’t necessarily in a position to be happy about a tax rebate, so it may not be as effective as he thought.”
Meanwhile, Kishida’s measures to improve the transparency of political funding, which passed the lower house Thursday, haven’t put an end to voter suspicions over undeclared income. The measures require political parties to disclose the identities of all purchasers of fundraising tickets worth ¥50,000 or more and make public how the money was used after 10 years, according to NHK. They also ban cash payments for the tickets and impose stiffer fines for transgressions.
The overall size of the tax rebate program, at around ¥5.5 trillion, is close to 1% of gross domestic product, but Takahide Kiuchi, executive economist at the Nomura Research Institute, estimates it will only add around a fifth of a percentage point to GDP growth this year as a preference for saving reduces its impact.
The Cabinet Office had earlier forecast that the combination of tax cuts and expected wage hikes would increase per capita income by up to 3.8% this fiscal year. The Bank of Japan has also cited the potential positive impact of the measure in its economic projections.
The government is keen to boost consumer spending and raise wages as the strongest inflation in decades weighs on household budgets. Falling consumption has dragged on the economy over the past year, contributing to two quarters of contraction and only one of growth. Revised GDP figures for the first quarter due Monday are expected to show consumer spending still fell 0.7% compared with the previous three months.
While Japan’s biggest union federation has secured wage gains of more than 5% this year, the highest in more than three decades, those raises have yet to fully feed into take-home pay. Monthly data show wage increases have lagged inflation for more than two years.
At the same time, Kishida has just phased out energy subsidies that at one point had the government paying up to 20% of household electricity bills, and is asking consumers to pay more toward green energy.
Together with renewable energy levies introduced in April, average households are expected to pay an extra ¥32,300 in power bills this year, according to a calculation by Yoshiki Shinke, senior executive economist at Dai-Ichi Life Research Institute.
The significant administrative burden to implement the rebates has also drawn criticism, while lower income earners will receive the money piecemeal over a span of several months, further watering down any feel-good-factor.
A JNN poll put the cabinet’s approval rating at 25.1% in June as the funding scandal dragged on. About 60% of the polled respondents said they did not approve of the income tax cuts.
Nonetheless, with no obvious candidate waiting in the wings to replace him in the LDP, Kishida could well stay on as premier after the September party election. And no general election needs to be called until 2025.
--With assistance from Yoshiaki Nohara.
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