Economists Oppose Abe’s Plan

Most economists oppose Prime Minister Shinzo Abe’s plan to redirect some revenue from a planned sales-tax increase to child care and education because it would add to Japan’s massive debt burden, a Reuters poll showed.

The economists said the government elected in an Oct 22 general election should prioritize reform of Japan’s restrictive labor market and its social security system.

Campaigning began on Tuesday in a race that pits Abe’s Liberal Democratic Party against the fledgling Party of Hope led by Tokyo Governor Yuriko Koike and other smaller parties contesting seats in Japan’s more powerful lower house of parliament.

Abe promises to press ahead with the 2019 hike in sales tax to 10% from 8% but wishes to use some of the extra revenue for child care and education, instead of the original plan to repay government debt.

Koike’s Party of Hope, by contrast, says it would freeze the tax hike to ensure economic recovery.

“Considering huge public debt, which is at more than twice the size of the economy, balancing fiscal revenue and spending is a pressing issue,” said Atsushi Takeda, chief economist at Itochu Economic Research Institute. “Financial resources for new policies should be financed by cutting other government spending.”

Twenty-three of 34 economists said they do not support Abe’s plan to reallocate the sales tax revenue, the poll taken between Oct 3 and 12 showed. And 27 of 35 economists expect the government will increase the tax as planned in 2019. Abe has already postponed planned increases twice.

Asked about which economic areas the new government should focus on after the election, 22 economists in the poll selected labor market reform and 21 picked medical and social security reform.

Seventeen economists said the government needs to focus on measures to improve productivity, while nine advocated policies to encourage wage growth and a recovery in consumer spending. Fourteen respondents favored child care and education.