ASIAN
Development Bank (ADB) has made guarded observations about the proposed
tax changes in Japan in its supplement on Asian Development Outlook
(ADO) 2014 issued on 18th July.
The Supplement says:"In
June, the government announced its intent to relax immigration
regulations to address the labor shortage in construction and to reduce
corporate tax rates; both reforms are scheduled to start in 2015, but
actual implementation and feasibility remain uncertain."
It adds:
"Japan's stronger performance in the first quarter of 2014 suggests
slightly faster growth in 2014, now forecast at 1.5%, up from 1.3% in
ADO 2014. Given these developments, the value-added tax is expected to
be hiked further from 8% to 10% on 1 October 2015, as currently
scheduled. Concerns remain regarding the implementation of reform under
the third arrow of Abenomics."
According
to the Supplement, expansionary monetary policy, one of the three
arrows of Abenomics, appears to be pulling Japan out of deflation as
intended. Inflation is firmly in positive territory, just above 1%
(excluding the effect from the value-added tax hike, as anchored by
inflation expectations.
Japan
grew by a robust a seasonally adjusted annualized rate (saar) of 6.7%
in the first quarter 2014, driven by both private consumption and
investment. As expected, private consumption surged by saar of 9.2% in
the first quarter in advance of the value-added tax hike, contributing
5.5 percentage points to first quarter growth.
It
says that Developing Asia remains broadly on track to reach the growth
forecasts published in ADO 2014. Despite slower-than-expected expansion
in the United States in the first quarter of this year, the Supplement
maintains the regional growth forecasts at 6.2% in 2014 and 6.4% in
2015.
It
notes that growth in the People's Republic of China is moderating in
line with earlier expectations and should achieve the forecast 7.5% in
2014 and 7.4% in 2015.
The Supplement observes that East Asia as a whole is similarly paced to meet growth projections of 6.7% in both 2014 and 2015.
It adds: "With
parliamentary elections over, India is expected to pursue long-delayed
reform. India's growth forecast is maintained at 5.5% in fiscal year
2014 but upgraded to 6.3% in FY2015 as expected reform bears fruit. With
this improved outlook for the largest economy in South Asia, expansion
in the sub region is expected to reach 5.4% in 2014 and pick up to 6.1%
in 2015."
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