Japan enacts a long-discussed tax hike

Today, Japan saw its first national consumption tax hike since 1997, with the rate rising from 5 percent to 8 percent. For more than a decade, Japan’s relatively low consumer taxes have been seen as a likely target for raising rates to increase tax revenue and begin dealing with Japan’s high levels of national debt. But raising the tax rate has not entirely gone without controversy or criticism. Some have feared a drop in consumer spending and a heavier burden on Japan’s expanding aging population, pointing to how the 1997 tax hike contributed to the country’s return to recession.

The short-term effect is estimated to be about 6 trillion yen ($58 billion), or 1.2 percent of gross domestic product, according to Morgan Stanley. Tokyo hopes that stimulus measures designed to blunt the impact on select groups will help lessen the sting of the increase. Though Japanese Prime Minister Shinzo Abe feared the tax hike would harm his economic agenda, often referred to as Abenomics, Abe also feared that backing down on the long-planned increase would undermine confidence in the government’s commitment to address Japan’s ballooning debt and follow through with other measures to improve the country’s economic position.