TOKYO (Reuters) — Japanese companies are largely ignoring Prime Minister Shinzo Abe's calls for higher wages in the face of an expected sales tax increase, a Reuters poll shows, underscoring the difficulties the government faces in trying to defeat entrenched deflation.
Abe will make a final decision on Oct. 1 about whether to lift the tax to eight per cent from five per cent in April. While necessary to bolster state coffers, the hike threatens to take the wind out of the success he has had with boosting stocks and weakening the yen.
Now that Japan has begun to benefit from his bold monetary and fiscal policies, the prime minister wants companies to return the favour by lifting wages, which in turn will boost consumption and prices, and make the recovery sustainable.
But the Reuters Corporate Survey shows firms remain averse to raising base pay, preferring if anything to boost bonuses — which can be scaled back later if the economy weakens.
Just under half of 266 companies answering a question on what they will do if the tax is raised as planned, said they will not respond with any increase to overall pay — including bonuses.
Only 13 per cent plan to offset the tax hike with any pay increases, while 37 per cent do not yet know what they will do, according to the survey which was conducted between Aug. 30 and Sept. 13.
Abe meets with business and labour leaders on Sept. 20 to make his case on wages. But comments from respondents suggest firms are still worried about earnings levels and that any improvements in profits have not been enough for them to justifywage hikes.
"Due to earnings, we are just not in a position to raise wages," said an executive at a wholesale firm.
The people's burden
The survey shows some 60 per cent of firms do expect profits to rise in the year that began in April — largely in line with a previous poll three months ago. Big automakers like Toyota Motor Corp have also said they expect sharp climbs in income on the back of a weaker yen.
But 15 years of deflation and rising import costs due to the softer yen have made firms cautious. And they argue, they shouldn't be compelled to lift wages, just because the government decides to hike taxes.
"The burden of the tax rise should essentially be on the Japanese people," said an executive at a metals and machinery maker, who is planning to keep the status quo.
"We need to keep an eye on prices."
Looking ahead to annual salary negotiations, 60 per cent described their basic stance as to lift bonuses but not base wages, while 24 per cent were not considering any pay increases, according to the questionnaire.
Higher bonuses boost the economy less than base pay increases of the same amount because households, seeing the bigger bonus as a likely temporary windfall, tend to save more of it than they would a permanent wage increase.
"If real wages decline, the natural implication is that real consumption should decline as well," said Takuji Okubo, chief economist at Japan Macro Advisors, who reviewed the survey results.
"And since consumption has been the driver of Japan's recent economic growth, there's a substantial risk that growth could severely weaken after April 2014."
The survey, conducted for Reuters by Nikkei Research, polls upper management at 400 companies capitalised at more than 1 billion yen each. The firms, which are split evenly between manufacturers and non-manufacturers, are not required to answer every question and provide responses on condition of anonymity.
On Sept. 19, the Reuters Tankan survey, which is taken alongside the corporate poll, found that confidence among Japanese manufacturers slipped in September from a three-year high, as concerns about slowing growth in emerging markets hit exporters and a weaker yen pushed up import costs.
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