Lawmakers are reluctant to reopen legislation on the sales tax rise, raising the bar for Prime Minister Shinzo Abe should he seek a shallower path of increases, according to one of his advisers.
“They don’t want to touch on this issue,” Etsuro Honda, 58, a Shizuoka University professor and one of the brain trust members behind Abe’s reflation plan, said Wednesday in Tokyo, referring to a majority of lawmakers.
“I’m fully aware that I’m in a minority” that favors a flatter trajectory for boosting the levy than the current law provides, he acknowledged.
Abe, whom Honda has known for some three decades, “wants to decide himself” on hiking the levy, Honda said before the government announced that a panel of experts would analyze the issue Thursday.
The law enacted last year gives Abe the power either to let the rate rise to 8 percent next April and to 10 percent in October 2015 from 5 percent today, or to hold off if he concludes the economy isn’t strong enough to withstand the increases.
Honda’s assessment indicates Abe would need to expend political capital to force a change in the law, such as Honda’s favored 1 percentage point bump a year. The prime minister already faces the task of building support for a package of economic reforms from entering the Trans Pacific Partnership free-trade bloc to revamping agricultural landholdings and tax relief for companies.
Abe’s efforts to revive the world’s third-largest economy have driven the Topix index of shares up about 35 percent this year, with a more competitive currency helping exporters. The yen was down 10 percent against the dollar over that period.
A gradual rise in the sales tax may help boost inflationary expectations as the Bank of Japan pushes to achieve its 2 percent inflation target, Honda said in the interview at the prime minister’s office complex.
Hiking the tax by 3 points in April would place a huge burden on households, he said.
The impact of the scheduled tax hike would cause gross domestic product to shrink in the second quarter of 2014, according to the median estimate of economists surveyed by Bloomberg News.
When the levy was last raised, in 1997, the move contributed to tipping the nation into a recession that cost then-Prime Minister Ryutaro Hashimoto his job.
Koichi Hamada, a retired Yale University professor and another member of the reflationist brain trust that has advised Abe on monetary policy, said Wednesday that BOJ Gov. Haruhiko Kuroda should be prepared to add further monetary stimulus if the economy falters after the planned tax increase.
“Kuroda seems to be in favor of the consumption tax hike,” Hamada said in a phone interview from his home in Connecticut. “In that case, he should be ready to use the strong medicine of monetary policy if the economy falters.”
Kuroda will be one of the members of the panel of experts analyzing the tax, Finance Minister Taro Aso told reporters in Tokyo on Thursday.
The Finance Ministry has indicated that a fiscal package could be considered to cushion the hit to GDP from the increase. Aso also said that consideration of investment tax cuts would be accelerated and housing assistance also would be examined leading up to a sales tax boost.
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