This Week’s “Nagata-cho” (10-17.Dec, 2013)

 Last week on December 12, the Cabinet approved the supplementary
budget entailing ￥5.46 trillion yen of economic measures to mitigate
possible negative impacts of the scheduled consumption tax hike in
April 2014. The Cabinet plans to submit the budget to the ordinary
session of the Diet in January.
 The supplementary budget includes (1) infrastructure works and
support for mid- and small-sized enterprises in eye of the Tokyo
Olympic and Paralympic Games in 2020 (1.39 trillion yen), (2)
disaster-resilience and safety measures, such as rebuilding of school
facilities (1.19 trillion yen), (3) transfer to the special account
for reconstruction after the Great East Japan earthquake (1.93
trillion yen), (4) measures to youth, women and elderly (0.3 trillion
yen), grants to low-income brochures and child-rearing families (0.64
trillion yen), etc.

 On December 12, the ruling Liberal Democratic Party and New Komeito
decided the outline for the tax reform proposal for the fiscal 2014.
It entails plans to support enterprises by reducing burdens on
enterprises, beside the plan to abolish tax reduction special
corporate tax a year earlier than scheduled. Also, it proposed
corporate tax reduction within the National Strategic Special Zones on
research and development and investment works. Combined with the tax
reduction decided in October, the total amount of tax reduction will
be 630 billion yen both in the national and local taxes. The Cabinet
will continue considering further corporate tax reduction which Prime
Minister Shinzo Abe has put emphasis on.

 On the other hand, the burden on individuals will increase.
Considering retrogressive nature of the consumption tax hike scheduled
in April, it plans to decrease the tax deduction amount of the
high-salary brochures. From the current 2.45 million yen deducted from
annual income of more than 15 million yen, the mount will be changed
to universally 2.30 million yen from brochures of annual income of
more than 12 million yen from January 2016. As the subject of taxation
will increase, it will be a tax-hike in substance.

 Also, given the criticisms on vehicle acquisition tax as being the
double-taxation with consumption tax, the tax will be decreased to 3%
from the current 5% for ordinary vehicles, and 2% from the current 3%
for light-weighted vehicles. The tax will be abolished when the
consumption tax rate is to be hiked to 10%. Yet, as the budget of
local governments will be decreased, it will raise the automobile tax
of new light-weighted vehicles from the current ￥7,200/year to
￥18,000/year from April 2015. The tax on motorized two wheel vehicles,
small-sized two wheel vehicles of more than 250cc, and light-weighted
trucks will be increased to, respectively, ￥2,000 from ￥1,000, ￥6.000
from ￥4,000, ￥3,800 from ￥3,000. Also, the automobile tax amount,
which owners pay every year, will be revised to the ones promoting the
environmentally-friendly vehicles.

 It also entails measures to prevent financial gaps from widening
among the local governments. While the local governments receiving
local subsidies will be granted less subsidies after the consumption
tax hike, and wealthy local governments not receiving the subsidies
will be benefited from the net increase of the tax-hike. In light of
this, some ￥600 billion, 1/4 of corporate residential tax, will be
transferred as national tax and redistributed to the local governments
with less financial ground.
 The ruling coalition reserved conclusion on the reduced tax rate of
the consumption tax, which has been the main focal point but to
introduce it when the tax is to be hiked to 10%. It announced to reach
an agreement on details by next year’s outline for the tax reform
proposal in December. The coalition partner Komeito had proposed
repeatedly to exclude certain items such as food, newspaper and books
from subject of the consumption tax, but LDP had been rather passive
on this policy. The negotiation lasted until the very last moment
between LDP and Komeito, and they remained vague on timing and ways of
introducing the system. It might trigger discussions for the next year.

 The budget FY 2014 is reaching at climax of its compilation process.
On December 12, the Cabinet approved the basic policy for formulation
of budget 2014, seeking to achieve overcoming deflation and achieving
fiscal soundness simultaneously. Still, it stepped back from its
original draft approved by the Council on Economic and Fiscal Policy
on December 5 which entailed reduction of medical fees and public
works projects. The amount of public works projects will likely be
some ￥5.3 trillion which exceeds this year’s amount by 1-2%.

 The government is nearing the final stage of budget formulation
process, which is said to amount to ￥96 trillion, oversizing this year’
s budget (￥92.6 trillion). The budget appropriations will likely
increase in the fields of public works projects, defense policy,
social security, etc. After final coordination by the ruling party and
government, the Cabinet will approve the budget officially in its
meeting on December 24. Let’s see carefully the content of the budget
FY 2014, as it anticipates the future administration of this country.

*The Diet is in recess.