Prime Minister Shinzo Abe is keeping quiet about whether to he will raise the consumption tax in October 2015 as scheduled, saying only that he will make a final decision while “comprehensively” analyzing the economic situation.
Hiking the tax to 10 percent next year “would play a role” in sustaining the social security system, Abe told a news conference Wednesday after naming a raft of new Liberal Democratic Party executives and Cabinet members.
But Abe indicated that the second round of the two-stage tax hike — aimed at covering rising social security costs — might be put off if the April increase to 8 percent from 5 percent continues to drag down the economy.
“We will put the economy on a growth path as soon as possible and spread the benefits of ‘Abenomics’ across the nation,” Abe said, referring to his economic policies centering on aggressive monetary easing by the Bank of Japan and massive fiscal spending.
Abe reiterated that he will decide by the end of the year whether to go ahead with the additional tax hike, suggesting he will assess various economic indicators to be released through December, including revised July-September gross domestic product data.
As Abe appointed Sadakazu Tanigaki, a fiscal hawk, as the new LDP secretary-general and retained Taro Aso, who took the lead in the first tax hike, as finance minister, expectations are growing that he is paving the way for the second increase.
Tanigaki, the LDP leader when the tax-hike legislation made it through the Diet, said at a news conference earlier Wednesday that the next increase “should be implemented” as planned.
Touching on the recent flooding in Hiroshima and sluggishness in private spending at home, Tanigaki added that “we should keep an eye on” the economic situation before deciding the tax question.
Aso said Wednesday the government should proceed with the tax hike, describing it as vital to restoring Japan’s precarious fiscal health.
Another key minister in charge of promoting Abe’s economic policy mix emphasized that the administration’s most important task is to limit the negative impact of the next consumption tax hike.
“Without bolstering the economy, we can’t achieve stable management of the social security system and fiscal rehabilitation,” said Akira Amari, Abe’s close ally who was reappointed Wednesday as economic and fiscal policy minister.
“I believe the prime minister will make a judgment (on the tax issue), while taking this point into account,” Amari added.
But Etsuro Honda, Abe’s special adviser on economic affairs, has urged the administration to consider delaying the further tax hike, saying in an interview, “The second tax hike could greatly depress consumer sentiment.”
In August 2012, the then ruling Democratic Party of Japan and the two opposition parties — the LDP and the New Komeito party — agreed on a deal to enact legislation for social security reform and a rise in taxes in exchange for a promise from Prime Minister Yoshihiko Noda of the DPJ to call a general election “sometime soon.”
Natsuo Yamaguchi, who has served as New Komeito leader since then, expressed hope that the tax hike will be carried out next year, telling reporters late Wednesday that the current government is “responsible” for fulfilling the three-party agreement.
Japan’s fiscal health is the worst among major developed economies with public debt equivalent to more than 200 percent of GDP. Central government debt has topped ¥1 quadrillion.
The first round of the sales tax hike was implemented by the Abe administration as scheduled, but the latest economic data have showed that it stifled demand and the economy has been stalling.
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