Abe to post­pone sales-tax hike

Business Mirror - - THE WORLD -

JA­PANESE Prime Min­is­ter Shinzo Abe wants to put off a planned sales-tax in­crease for two-and-a-half years, two rul­ing Lib­eral Demo­cratic Party (LDP) of­fi­cials said on Mon­day, as Abe pre­pares to end the spec­u­la­tion that has swirled for months.

Speak­ing after a meet­ing with Abe in Tokyo, LDP Vice Pres­i­dent Masahiko Ko­mura told re­porters the prime min­is­ter “seems de­ter­mined,” when asked whether the sales- tax in­crease would be de­layed a sec­ond time.

Toshi­hiro Nikai, chair­man of the LDP’s gen­eral coun­cil, said after a sep­a­rate meet­ing with Abe that he un­der­stood the prime min­is­ter wouldn’t call a gen­eral elec­tion to co­in­cide with an up­per- house vote in July, as many had spec­u­lated.

Abe had re­peat­edly said he would go ahead with the plan to boost the un­pop­u­lar con­sump­tion tax to 10 per­cent in April 2017 from the cur­rent 8 per­cent, un­less there was a cri­sis on the scale of the Lehman col­lapse or a ma­jor earth­quake.

Last week, in a pre­sen­ta­tion to the Group- of- Seven lead­ers, Abe made the case that the global econ­omy was on the brink of just such a dis­as­ter and that ur­gent mea­sures needed to be taken. He told re­porters he would make a fi­nal de­ci­sion on the tax be­fore the up­per- house elec­tion.

Bulging debt

A PRE­VI­OUS in­crease in the tax to 8 per­cent in 2014 pushed Ja­pan into a re­ces­sion, prompt­ing the gov­ern­ment to de­lay the next phase of the hike that had been sched­uled for Oc­to­ber 2015.

An­other de­lay could help bol­ster Abe’s sup­port be­fore the up­per­house elec­tion, but would raise fresh ques­tions about how to rein in the world’s big­gest debt bur­den and fund so­cial se­cu­rity in a rapidly ag­ing so­ci­ety. Al­most two thirds of re­spon­dents to a poll pub­lished by the Nikkei news­pa­per on Mon­day said they op­posed the tax in­crease. Sup­port for Abe’s Cab­i­net was at 56 per­cent, up three points on the last sur­vey to the high­est level found in the pa­per’s sur­veys since Septem­ber 2014.

Op­po­si­tion par­ties are set to sub­mit a no- con­fi­dence mo­tion against Abe if the tax is de­layed, say­ing his Abe­nomics pol­icy pro­gram has failed.

Since Abe took of­fice in 2012, dras­tic mon­e­tary eas­ing weak­ened the yen, bol­ster­ing ex­porters’ prof­its and share prices, un­til the yen strength­ened in 2016. The econ­omy has zigzagged between con­trac­tion and growth, con­sumer spend­ing is weak and in­fla­tion data last week showed that prices are falling again.

“A post­pone­ment of the planned sales- tax in­crease will be pos­i­tive for pri­vate con­sump­tion in the near term,” said At­sushi Takeda, an econ­o­mist at Itochu Corp. in Tokyo. “How­ever, in the long run, it may raise con­cern over the sus­tain­abil­ity of Ja­pan’s so­cial wel­fare sys­tem.”

Post­pon­ing the sales tax doesn’t nec­es­sar­ily mean the Bank of Ja­pan won’t act at its next meet­ing in mid- June, Takeda added.

In a fur­ther bid to bol­ster the econ­omy, Abe’s gov­ern­ment is set to pro­pose a stim­u­lus pack­age of ¥5 tril­lion to ¥ 10 tril­lion in a spe­cial leg­isla­tive ses­sion after the July up­per-house elec­tion, the Nikkei news­pa­per re­ported on Satur­day.

Abe’s plans on the sales tax and the elec­tion aren’t backed by all his se­nior of­fi­cials. Fi­nance Min­is­ter Taro Aso said on Satur­day that Abe should call an elec­tion in the lower house to co­in­cide with the up­per­house vote if the tax in­crease is to be de­layed again, to put the plan to the pub­lic, Ky­odo News re­ported.

Abe doesn’t need to hold an elec­tion in the more pow­er­ful lower house un­til 2018. The LDP’s Pol­icy chief To­momi Inada told Abe on Mon­day he should raise the tax by at least 1 per­cent­age point next year or hold an elec­tion.

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