Multi-trillion yen boost to rebuild Japan

 
Tim Wallace
Follow Tim
TRILLIONS of yen will be raised in tax over the next decade to pay for post-earthquake reconstruction work, the Japanese government’s tax commission has announced.

The proposed supplementary budget will bring in ¥11.2 trillion (£92.4bn). Either higher income and corporate taxes, or a combination including higher tobacco taxes, are expected to be used.

The tax commission, which reported at the end of last week, suggested an alternative of hiking consumption taxes. That was rejected by prime minister Yoshihiko Noda, however.

This is the third supplementary budget of the year. The first used emergency reserves and cut spending on other areas to reallocate around ¥4 trillion to the reconstruction effort following March’s earthquake and tsunami. The second was passed in July, using almost ¥2 trillion from unexpectedly high tax receipts in 2010.

The largest element of the third supplementary budget is a ¥3 trillion fund which is to be given to regional governments. They will be able to use it as they see fit for local projects.

Nomura estimates suggest a further ¥500bn will be spent on support for domestic investment by supply-chain related companies, and ¥350bn on sea embankments and roads.

The economy as a whole should receive a boost from the reconstruction, according to analysts.

“We have estimated that ¥2.9 trillion will go towards public works, ¥1.8 trillion towards boosting corporate earnings and ¥2.1 trillion towards boosting personal incomes,” said Nomura’s Takahide Kiuchi. “The cabinet office’s short-run econometric models indicate a substantial boost to GDP of 1.1 per cent over one year.”

Around ¥2.5 trillion is to be used to plug the pension funding shortfall.

Consultations with opposition parties are set to begin on 20 September.