Prime Minister Shinzo Abe plans to divert part of the revenue from the next consumption tax hike to increase government spending on education, including free pre-school education for children, instead of being used to repay debt. Public investment in education is important for the nation's future, particularly to ensure education opportunities for children from poor families in order to break the chain of poverty across generations. Abe says he dissolved the Lower House for a snap election this month to seek the judgment of voters on his proposal. It will be hard for many people to say no to the proposal, even if it entails delaying the government's fiscal reconstruction target. However, the plan should be weighed against the consequences of putting fiscal rehabilitation on the back burner.
It's not the first time Abe is seeking a voter mandate on a plan that few people would reject. The December 2014 snap election was held as the prime minister sought the electorate's approval of his decision to delay the consumption tax hike to 10 percent, initially planned in October the following year, to April 2017. In June last year, he postponed the hike once again to October 2019 and asked for voters' endorsement of the decision in the subsequent Upper House election. Each time the prime minister put priority on sustaining the economic growth under his watch. Both elections resulted in landslide wins for his Liberal Democratic Party-Komeito ruling coalition.
It's estimated that the planned hike in the consumption tax from 8 percent to 10 percent two years from now will bring ¥5.8 trillion in additional revenue to state coffers annually. Under the current plan, ¥1.45 trillion of that amount will be spent on beefing up social security such as the pension program, medical services and child-rearing support, while ¥4 trillion will be used to repay debt incurred to cover the bulging social security expenses. Abe said he is changing the plan to divert ¥2 trillion out of the ¥4 trillion reserved for debt repayment to increase public spending on education. Greater government support for children's education will reduce the burden of such expenses on households, possibly making room for more consumer spending — which plummeted after the last consumption tax hike in 2014.
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