Senior Japan official calls for Abe to delay sales-tax hike

Sun Oct 26, 2014 4:45am EDT
 
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By Yoshifumi Takemoto

TOKYO (Reuters) - A top Japanese government official said Prime Minister Shinzo Abe should delay a planned sales-tax increase, the strongest sign yet that economic weakness is causing concern among those close to the premier ahead of the difficult tax decision.

"I think it should be delayed" by a year and a half to April 2017, the prominent official told a small group of people in a recent conversation on condition of anonymity. He expressed concern that raising the national sales tax too soon after a damaging April hike could derail an economic recovery.

Powerful interests like the Finance Ministry, the Bank of Japan and major corporations want Abe to raise the tax as planned next year to keep Japan's promise to reduce the biggest debt burden in the industrial world. But the economic and political environment is making it harder for Abe to make unpopular policy choices.

Recovery in the world's third-biggest economy is struggling, Abe's popularity has taken a hit with two Cabinet ministers resigning in political scandals, the U.S. Treasury Department is pushing Tokyo not to go too fast on budget-balancing and Abe's party faces tough regional elections next April.

An 18-month delay in the tax hike would be in line with recommendations from Etsuro Honda, a University of Shizuoka professor and a prominent outside architect of Abe's policies to revive growth and banish deflation.

"There's a great danger from the next sales tax hike given the current situation where the positive effects of 'Abenomics' and the negative impact of April's sales tax hike are offsetting each other," Honda told reporters on Wednesday after meeting a group of more than 40 ruling party lawmakers who are growing wary about the next tax hike.

Abe raised the sales tax to 8 percent from 5 percent in April, the first of a planned two-stage increase that is the boldest attempt in nearly two decades to curb public debt that is well over twice the size of the economy.

That hike walloped personal spending, knocking the economy for an unexpectedly deep 7.1 percent annualized contraction in the second quarter, the worst fall since the global financial crisis in early 2009.   Continued...

 
A security guard salutes at the entrance of the Bank of Japan building in Tokyo January 22, 2014. REUTERS/Yuya Shino