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Abe begins collecting feedback on tax hike before decision

by Ayako Mie

Staff Writer

A government panel kicked off a seven-day discussion Monday on whether the sales tax should be hiked next April amid concerns it could derail Prime Minister Shinzo Abe’s radical efforts to end decades of deflation.

Abe is soliciting opinions from 60 people ranging from university professors and business leaders to heads of non-profit organizations so he can decide whether the first phase of the tax hike, to 8 percent from 5 percent, should proceed next April.

Abe is expected to make his decision before leaving for the Asia-Pacific Economic Cooperation forum summit on Oct. 7. It will be based on revised figures for April-June gross domestic product, which will be announced Sept. 9, and the panel’s opinions.

“The government believes that economic revitalization would expedite the rehabilitation of fiscal health,” Finance Minister Taro Aso said at the beginning of the meeting.

Aso says the tax hike should proceed as planned, but experts are divided on the issue.

While Keidanren Chairman Hiromasa Yonekura advised proceeding with the hike at the first meeting, Yale University professor Koichi Hamada, a special adviser to Abe who will attend the panel meeting on Tuesday, is suggesting the levy be delayed.

On Monday, only Kaori Yamane, leader of Shufuren, an association of housewives, was opposed to the tax hike. The other six panelists backed it but differed in their views on how the tax should be raised.

Kazumasa Iwata, head of Japan Center for Economic Research, said a hike of only one point is needed based solely on economic reasons rather than politics.

But Yonekura said Japan must stick with the original 3-point hike because the international community will lose trust in Japan’s efforts to rein in its fearsome debt unless substantial action is taken.

“If we are not going to raise the taxes as scheduled, we will have suffer from triple economic slowdowns, such as lower share prices, a weak yen and a depreciation in bond prices,” the chief of the influential business lobby said, alluding to the catastrophic hazard of surging yields.

Abe is engaging in delicate balancing act on the tax hikes. While he wants to avoid the situation that emerged in 1997 when the economic recovery lost steam following the 2-point tax hike instituted by then-Prime Minister Ryutaro Hashimoto, the international community is calling on Japan to do something about its more than ¥1 quadrillion debt.

  • Cypriot Physician

    Although loudly dismissed by almost all economists and pundits, Abe and his Cabinet ought to strongly consider the history of raises in consumption tax and economic growth. In the past two cases with former PM Murayama in 1994 and PM Hashimoto in 1997, the incredibly untimely introduction of consumption tax increases cut short the beginnings of a promising-looking economic recovery.