After weeks of leaks and speculation, Prime Minister Shinzo Abe announced Tuesday he will dissolve the Lower House on Friday for a snap election next month, after his administration decided to delay a second consumption tax hike planned for next October.
At a news conference in the evening, Abe vowed that the tax hike to 10 percent from 8 percent will not be postponed again. He pledged to eliminate a clause in the current special tax law that allows the government to delay tax increases if economic conditions suffer a sharp deterioration.
Delaying the tax hike risks fueling investor concern over Japan’s long-term solvency, given the nation’s hefty and snowballing public debt.
To ease this concern, Abe also promised to maintain his administration’s goal of balancing the primary budget — a key indicator of fiscal soundness — in 2020. The administration will draw up a concrete road map by next summer, Abe said.
As for the tax hike, he said he was worried that an untimely move amid an economic slowdown could put Japan’s economy back into deflation.
He pointed out that the gross domestic product unexpectedly shrank an annualized 1.6 percent in the July-September period — a second consecutive decline.
“I have determined that raising the (sales tax) another 2 percentage points would push down consumer spending and it would make it hard (for Japan) to break away from deflation,” Abe said.
To take necessary measures to prop up the economy, he also pledged to craft an extra budget for fiscal 2014.
Many political insiders say the December election could cost Abe’s ruling bloc some seats in the chamber given that in the previous 2012 vote, the Liberal Democratic Party and Komeito won as many as 325 of its 480 seats.
Still, Abe argued that he needs to get voters’ approval for such an important policy decision, and an election is the way to do that. Official campaigning will start Dec. 2, with voting set for Dec. 14.
“We’d like to ask the nation if we should keep promoting economic policies and growth strategies we have carried out so far,” Abe told a news conference.
Later on Tuesday, Democratic Party of Japan leader Banri Kaieda slammed Abe’s decision to dissolve the Lower House, saying there it no justifiable reason to call a snap election when no party is against his decision to delay the tax hike.
“Under the current economic climate, we also think it’s not the time to raise the consumption tax in October next year,” Kaieda told reporters following Abe’s announcement.
“No party is outright opposed to that. So there is no way it would become the focal point (in the next general election),” he said.
Under the Abe administration the number of nonregular employees increased by 1.5 million while the number of regular employees declined by 90,000, he said.
“I believe this is one of the failures of Abe’s economic policies.”