After being voted into office last year the Japanese Prime Minister last year, Shinzo Abe, announced his plan to awaken the world's third largest economy from the slumber of the past two decades. 'Abenomics', as it is now called, is comprised of 'three arrows':
- massive fiscal stimulus
- aggressive monetary easing from the Bank of Japan
- structural reforms to boost competitiveness.
On the tax front, this has included a proposal to increase sales tax from 5 percent to 8 percent in April 2014, increasing to 10 percent from April 2015. Last week, it was announced that corporate tax will be reduced by approximately 2.5 percent one year earlier had been planned. Notwithstanding this, Japan continues to have a relatively high corporate tax rate (effective tax of 38.3 percent).
With unparalleled national debt, and a rapidly ageing population, it seems there is little more, at least for now, that could be done to increase Japan’s global tax competiveness. What this means is that, subject to being able to effectively hedge against movements in a potentially volatile Yen, Australia remains relatively competitive when it comes to taxation and therefore an attractive destination for investment and re-investment.
More broadly, whether or not Abe-san’s arrows hit their target remains to be seen. As a valued trade partner, and with further negotiations on a free trade agreement to occur in the new year, it will be in Australia’s long term interests if they do.