- Will examine the schedule and funding of plan to suspend sales tax on food by two years
- Will not resort to debt issuance to fund suspension of sales tax on food
- To seek the such measures at the earliest date possible by securing non-tax revenues, reviews to subsidies
- Must pull Japan out of excessively tight fiscal policy state
- A more proactive fiscal policy will be a key component of the administration’s policy transition
This is going to be her biggest math problem to deal with. There’s roughly a ¥5 trillion hole annually that needs to be filled if she is to pursue this two-year food sales tax suspension. And there are no easy avenues on how to go about it.
The simplest way is to break open the piggy bank and dive into Japan’s foreign currency reserves. However, that will be widely shun upon by markets as these are funds that are usually reserved for currency intervention. So, there’s that.
Otherwise, it is going back about the traditional way in focusing on tax revenue i.e. corporate tax, and also pulling the plug on ineffective subsidies and programs.
And even if she hides behind a tax surplus to fund this suspension of the food sales tax (instead of using it to pay down debt), it is effectively what one can describe as “shadow borrowing” as you are choosing to keep debt at a higher level than it would be. Essentially, this is also part of the Takaichi trade amid concerns that Japan’s national debt will explode higher.
It’s tough to figure how she wants to go about this to satisfy all parties. But if she can’t appease markets, that is going to be a problem if the yen currency and Japan government bond yields continue to crumble under the weight of the pressure.
This article was written by Justin Low at investinglive.com.