March 28, 2016 / 7:08 AM / in 2 years

Japan's Abe expected to delay sales tax rise, call snap election - again

TOKYO (Reuters) - 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.

A shop clerk (2nd R) carries a box of shoes under sale signboards at a shoes retail store at a shopping district in Tokyo, Japan, April 28, 2015 file photo. REUTERS/Yuya Shino/Files

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 percent from 8 percent. 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 U.S. 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 two-thirds majority in both houses of parliament and a majority of voters in a public referendum. The only two previous cases of dual-chamber elections resulted in landslides for Abe’s Liberal Democratic Party (LDP) in both houses.

‘POLITICAL DECISION’

Abe has repeatedly said the sales tax rise would go ahead unless a global economic contraction or a Lehman-style market shock jolted Japan’s economy. Chief Cabinet Secretary Yoshihide Suga repeated that stance on Monday.

Recently, however, Abe has said that whether to proceed with the rise would be a “political decision”, and that boosting the levy would be meaningless if it sliced tax revenues by growth.

Abe has also been meeting foreign economists, including advocates of fiscal stimulus such as Paul Krugman, fuelling speculation that he is laying the groundwork for a delay.

The tax rise, agreed upon by Abe’s predecessor, has never had pride of place in his “Abenomics” recipe for reviving Japan’s long-sluggish economy - a mix of hyper-easy monetary policy, government spending and reforms.

Abe is also thought to want to call a lower house election - not formally required until 2018 - before fragmented opposition parties get their houses in order.

The main opposition Democratic Party has merged with a smaller rival, and cooperation for the upper house poll with the Japanese Communist Party, the second biggest opposition group, is moving ahead. But support for the merged party languished at 9 percent in a Nikkei business daily survey published on Monday, against 38 percent who backed the LDP.

Still, some doubts remain as to whether Abe will risk calling a snap poll given recent slides in his support rating to below 50 percent. Political insiders say the results of two lower house by-elections on April 24 will provide input for a decision on an election, as will voter surveys to be conducted by the LDP.

   

Reporting by Linda Sieg and Kaori Kaneko; Additional reporting by Tokyo markets team; Editing by Kenneth Maxwell

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