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Japan’s Abe exploring delicate timing of tax hike decision

JIJI

Meta

As this summer’s Upper House election draws near, Prime Minister Shinzo Abe faces the difficult problem of when to make the final decision on a planned consumption tax increase.

Speculation is growing that Abe will again postpone the consumption tax hike, currently planned for next April, as personal spending is sluggish due partly to the impact of a series of powerful earthquakes that have hit Kumamoto Prefecture and nearby areas in Kyushu.

Whether Abe will announce his decision on the tax hike before or after the election of the Upper House of the Diet will likely affect how his Liberal Democratic Party will fare in the poll.

Meanwhile, if he postpones the planned tax increase from the current 8 percent to 10 percent, opposition parties look certain to attack Abe by claiming that his economic policy mix, known as Abenomics, has failed.

The timing of the decision adds to Abe’s headache over how to find convincing reasons for postponing the tax hike if his government actually decides to do this, sources familiar with the situation said.

At the recent final meeting of a government council to hear opinions from noted experts in Japan and abroad on global economic developments, Abe said he will place importance on economic issues in discussions at the two-day Group of Seven summit in Mie Prefecture beginning Thursday.

“I hope that the G-7 leaders will send a clear and powerful message at the summit in order to lead sustainable and strong growth of the global economy,” Abe, who will chair the summit, told the council meeting.

At the series of council meetings, some experts including Nobel Prize-winning U.S. economists Joseph Stiglitz and Paul Krugman advised Abe not to implement the consumption tax rise next April.

This has led some ruling and opposition lawmakers to speculate that Abe will announce the postponement of the tax increase after highlighting policy coordination at the G-7 summit, including fiscal spending.

But Abe clearly promised not to put off the tax hike again in 2014, when he postponed the consumption tax hike from the initially planned October of 2015 and dissolved the Lower House for a snap election.

In a parliamentary debate last week, Katsuya Okada, leader of the largest opposition Democratic Party, said that “the Cabinet should resign en masse if it cannot keep its promise to create a situation in which the consumption tax can be raised without any problem.”

During the debate, Okada called on the government to freeze the tax hike until April 2019, citing the sluggishness of personal consumption.

Former Lower House Speaker Bunmei Ibuki of the LDP said that with Okada’s logic, “a failure to raise the tax would mean the failure of Abenomics.”

“A postponement would allow the DP to say that the Abe government followed its advice,” Ibuki also said, seeing craftiness in Okada’s remarks.

Some LDP members have started to claim that Abe can wait until the announcement of preliminary gross domestic product data for the April to June period on Aug. 15 before making a final decision.

In such a case, Abe would have to face the voters’ verdict in the Upper House election, expected for July, under his current policy of not postponing the tax increase again unless a severe shock occurs.

Examples of such shocks cited by Abe were the collapse of U.S. investment bank Lehman Brothers in September 2008 and the March 2011 earthquake and tsunami that hit the Tohoku region.

Four opposition parties — the DP, the Japanese Communist Party, the Social Democratic Party and Seikatsu no To (People’s Life Party) —are united against the tax hike in April next year.

The government “should make a final decision early if it wants to put it off again,” a senior LDP official said, worrying that the tide may turn against the party.