Japanese prime minister delays sales tax hike

JAPANESE Prime Minister Shinzo Abe announced yesterday his widely-expected decision to delay a scheduled sales tax increase by two-and-a-half years, putting his plans for fiscal reforms on the back burner due to growing signs of weakness in the economy.

While the decision may help Abe win votes at an upper house election on July 10, it could fan doubts about his plans to curb Japan’s huge public debt and fund ballooning social welfare costs of a fast-ageing population.

Mindful of opposition criticism that the delay was a sign his “Abenomics” stimulus policies had failed to spur growth, Abe justified the decision, saying it was needed to forestall risks posed by external factors – notably slowing Chinese growth.

“Abenomics has been steadily producing results, but the global economic environment has changed unexpectedly quickly in the past year. The biggest risk is the slowdown in emerging economies,” Abe told a news conference.

“Faced with global risks, we must fully reignite the engine of Abenomics and speed up efforts to escape deflation.”

It is the second time Abe has delayed an increase in the sales tax to 10 percent from 8 percent, after a rise from 5 percent in April 2014 tipped the economy back into recession.

‘A positive surprise’

Lee Jin Yang, the macro research analyst for Aberdeen Asset Management in Singapore, said: “From an economic standpoint, the market is likely to view the delay as a positive surprise for domestic demand.”

Abe, whose premiership will end when his term as LDP president finishes in September 2018, had repeatedly said he would raise the tax as planned unless the economy faced a shock from a financial crisis or natural disaster.

But he laid the groundwork for a delay at last week’s Group of Seven (G7) summit, insisting his G7 partners shared a “strong sense of crisis” about the global economy, and he drew parallels to the 2008 world financial crisis that followed Lehman Brothers’ bankruptcy.

Abe said that while the global economy was not on the verge of another financial crisis, Japan must spearhead efforts to boost global demand by loosening fiscal policy. – Reuters

PHOTO: BLOOMBERG A customer shops at a cooked food store at the Sunamachi Ginza shopping street in Tokyo, Japan. Japanese Prime Minister Shinzo Abe yesterday pushed back a sales tax increase until 2019, setting back efforts by the government to tame the debt burden.