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Japan Signals Second Tax Hike

Japan Signals Second Tax HikeJapan Signals Second Tax Hike

The minister in charge of Japan’s “Abenomics” project has signaled that a second increase in consumption tax will go ahead as planned, saying extra monetary and fiscal stimulus would ensure it did not imperil the country’s recovery.

Weeks of disappointing data from the world’s third-largest economy have caused some advisors to Prime Minister Shinzo Abe to call for a delay in the increase to 10 percent, due to take effect next October, arguing that the first rise in April, from 5 percent to 8 percent, has taken too heavy a toll, News Now reported.

Akira Amari, minister for economic revitalization, said a second increase in taxes was “necessary” to meet rising costs for social security and to prevent a collapse in confidence in Japan’s ability to rein in its vast budget deficit.

“In judging whether the consumption-tax hike is going to be implemented or not, we have to think whether any kind of measures can be taken so that the economy does not sink back into deflation,” he said. “The key point here is that the Bank of Japan and the government should be aligned with each other.”

Amari is the executioner-in-chief of Abe’s economic plan, charged with overseeing both the Council on Economic and Fiscal Policy, the main advisory group, as well as the Industrial Competitiveness Council, which tries to ease structural constraints on growth via so-called “third arrow” initiatives. As such, his views are often seen as a good guide to policy direction.

Abe himself told Japan’s national broadcaster last week that he was “neutral” on the question of the tax increase, saying he would study third-quarter economic data – to be finalized in early December – before making a decision.

Private Sector

At the moment, private-sector economists expect growth in Japan of about 3.3 percent during the period, on an annualized basis, following the tax-hit 7.1 percent contraction in the second quarter.

Amari said that if the economy needed more support, then the “main measures” would come from the BoJ, which has set a clear target of reaching a 2 percent target for core consumer price inflation, which is currently running at 1.3 percent. The government would also stand ready with tax breaks for small businesses to spur capital spending, he said.

Even with offsetting stimulus, a second move to raise taxes is unlikely to go down well with consumers who have seen incomes struggle to keep pace with the rising cost of living.

A recent Jiji news agency poll found just 21 percent in favor of going ahead as planned, with 39 percent saying the increase should be postponed and 38 percent opposing the move outright.

 

Financialtribune.com