Abe waiting on third-quarter indicators before deciding whether to raise sales tax to 10%

Reuters, JIJI

Prime Minister Shinzo Abe said on Sunday he remained “neutral” on whether to proceed with a hike in the sales tax to 10 percent, adding that decision would hinge on the strength of economic indicators for the current quarter.

“The economy is a living thing, and we are thinking about this in a neutral way,” Abe told NHK.

Abe has to decide by the end of the year whether to proceed with a previously approved plan to raise the consumption tax to 10 percent from 8 percent in 2015 after a hike from 5 percent in April sent consumption into a sharp contraction.

Abe said in an NHK interview he wanted to see how the economy performs in the third quarter after GDP contracted by 7.1 percent from April to June as a result of the previous tax increase.

“We would like to get economic indicators from the quarter and hear the views of economists. As part of that process, we will decide whether to proceed with the tax hike as now set by law or whether to wait. That’s the discussion we need to have,” Abe said.

Abe said his goal is to restore growth to the world’s third-largest economy and end 15 years of deflation. At the same time, he has pledged to curb government debt, which is well over twice the size of GDP, the heaviest debt burden in the industrial world.

“We have no alternative but to aim to spur growth even as we get public finance on a healthier footing,” Abe told NHK.

Meanwhile, Liberal Democratic Party Secretary-General Sadakazu Tanigaki made clear his belief on Saturday that the government should raise the consumption tax rate again, to 10 percent in October 2015, as planned.

“We should not put off things in the broad direction,” Tanigaki said during a TV Tokyo program. “We can overcome risks associated with a tax increase by a range of measures, but it would be difficult to respond to risks stemming from a decision not to raise (the sales tax).”

The remarks appeared to shift his earlier position. On Sept. 3, soon after his appointment as secretary-general of the LDP, Tanigaki underscored the need to make a careful decision as to whether to go ahead with the additional tax hike by closely watching economic conditions.

“Prime Minister Shinzo Abe and I basically share the common understanding,” he said at the time.

On Saturday, Tanigaki also revealed that he had held talks the day before with Natsuo Yamaguchi, leader of New Komeito, the junior coalition partner of the LDP, and former Prime Minister Yoshihiko Noda of the now-opposition Democratic Party of Japan.

Tanigaki, Yamaguchi and Noda were at the helm of their respective political parties when they reached the landmark agreement in August 2012 to enact the law for the two-stage consumption tax hike, aimed at financing bulging social security costs. Noda’s DPJ was in power at that time.

The consumption tax was raised to 8 percent from 5 percent on April 1.

Abe plans to make a decision later this year on whether to hike it to 10 percent in October 2015.

  • Testerty

    Did the arrows missed?