Japan PM likely to delay sales tax hike

Tokyo, March 28: In late 2014, Japanese Prime Minister Shinzo Abe caught markets and voters off-guard when he postponed an unpopular sales tax hike and called a snap election. Less than two years later, the only surprise will be if he doesn't repeat the play.

With consumption weak, wage growth limp and emerging economy slowdowns clouding Japan’s growth, economists bet Abe will again delay raising the tax to 10% from 8%. Currently due in April 2017, the hike is seen by fiscal conservatives as vital to rein in bulging public debt and social security costs.

Breaking an end-2014 promise not to delay the tax hike again would give Abe cause to call an election for parliament’s lower house to coincide with a July poll for the upper chamber. His ruling bloc already holds a super majority in the lower house.

Big wins in both houses for Abe’s center-right LDP and like-minded lawmakers would boost his chances of being able to start revising Japan’s pacifist constitution — a move long cherished by Abe and his conservative support base.

Eighteen out of 21 economists surveyed by Reuters expect Abe to delay the sales tax rise, and 15 expect a snap poll. “It appears that he (Abe) wants to avoid any impact on the election of a tax rise, achieve a long- term administration and boost the possibility of revising the constitution,” said Harumi Taguchi, principal economist at IHS Global Insight.

The Sankei newspaper reported on Monday that Abe was likely to announce a decision to delay the tax rise around a May 26-27 Group of Seven summit that he will host. That would be after the May 18 release of first-quarter gross domestic product data for the world’s third-biggest economy, which is expected to be weak.

Conservatives have long viewed Japan’s constitution — unaltered since it was drafted by US Occupation forces after Japan’s defeat in World War Two — as limiting Japan’s ability to defend itself and as a symbol of a humiliating defeat. Admirers, however, say it is responsible for post-war peace.

Constitutional revisions must be approved by a twothirds majority in both houses of parliament and a majority of voters in a public referendum.

Reuters