Hike levy or lose credibility, SMBC analyst says


An analyst at a major brokerage wants the government to follow through on its plan and raise the consumption tax rate to 8 percent in April, warning that otherwise Japan could incur large costs as a result of a loss of confidence.

“Raising the tax rate as planned would be favorable unless there is a major change in the environment, like another Lehman shock,” Hidenori Suezawa, an analyst at SMBC Nikko Securities Inc., said in a recent interview.

Suezawa said he supports a higher consumption tax as social security costs rise because of the nation’s demographic woes.

The government “should raise the consumption tax, which is borne by a wider range of the population, including the elderly, rather than impose a heavier burden on workers through increases in income and corporate taxes,” he stressed.

Suezawa dismissed proposals by experts that the hike be postponed or that the increase should be more gradual, saying such policy changes could lead rating agencies to downgrade Japanese government bonds.

He noted that any reduction in JGB ratings would “undermine international confidence in the Japanese government’s policies and require costs larger than one can imagine to regain what Japan loses.”

“It would be less costly to raise the tax rate as planned and make up for a slowdown in the economy with supplementary budgets and other measures.”

Suezawa said his impression of the government’s fiscal rehabilitation plan, compiled in August, is lukewarm as the plan did not include the consumption tax hike.

“Without any tax hike, the numerical targets in the plan cannot be achieved,” he said.

Suezawa added that government efforts to boost Japan’s national power and economic strength as a whole, in addition to tax hikes, are necessary for the country’s fiscal reconstruction.

Arguing that economic growth and fiscal reconstruction are inseparably linked, he said, “if the consumption tax was raised to 30 to 40 percent without natural increases in tax revenues thanks to economic growth, people would leave the country.”

Suezawa urged the government to draw up its vision for comprehensive reform of not only the tax and social security systems but also steps for economic growth to show economic and fiscal sustainability to the public.