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The size of the government's upcoming stimulus package to buffer the economy from a planned sales tax hike next year will be 6 trillion yen, including 1 trillion yen in tax cuts to stimulate corporate investment, officials said Monday.
Prime Minister Shinzo Abe's Cabinet will approve the stimulus package Tuesday and decide to raise the consumption tax rate to 8 percent next April from the current 5 percent as scheduled, the officials said, adding the premier is expected to hold a press conference later in the day.
Abe, who is eager to prevent the tax hike from hurting Japan's nascent economic recovery, met Finance Minister Taro Aso and economic and fiscal policy minister Akira Amari on Monday at the prime minister's office to put the final touches to the package.
The government will make a commitment to ensuring a path toward an exit from nearly two decades of deflation and economic stagnation through the economic stimulus package, the officials said.
The details of the package will be determined in early December and an extra budget for fiscal 2013 aimed at funding it will be compiled in an integrated manner with an initial budget for fiscal 2014 at the end of this year, they added.
The government is also eyeing abolishing a special corporate income tax surcharge for reconstruction of areas devastated by the March 2011 earthquake and tsunami, in a move to prompt companies to boost wages, the officials said.
In a draft of its economic stimulus package, the government says the corporate tax cut through abolishing the surcharge a year earlier than scheduled will help companies "take one step toward continuous wage increases," one official said.
Abe's administration will also pledge in the package that the Ministry of Economy, Trade and Industry will survey wages at major corporations and disclose the results, they said.
The surcharge on individual income tax will be retained as ending it would hamper government efforts to rebuild areas ravaged by the March 2011 disaster, the officials said.
In the draft, Abe's administration urges companies to play a key role in revitalizing the Japanese economy, including the disaster-hit regions, by paying higher wages to their employees.
The government will also promise to provide funds necessary for reconstruction work through the supplementary budget for the current fiscal year ending March 2014.
Abe's Liberal Democratic Party supports ending the corporate tax surcharge ahead of schedule, but many lawmakers of the LDP's coalition partner the New Komeito party oppose the move due to concern over the possible negative impact on reconstruction.
It is estimated that abolishing the three-year surcharge a year earlier than scheduled will reduce government revenue by around 900 billion yen.
The sales tax hike is aimed at covering swelling social security costs for Japan's graying population, as the nation's fiscal health is the worst among major developed economies, with public debt equivalent to more than 200 percent of gross domestic product.
Under legislation enacted in August last year, the consumption tax rate is scheduled to be lifted to 10 percent in October 2015.
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