Business

Firms overwhelmingly want Abe to delay sales tax hike, poll shows

Reuters

Companies overwhelmingly want Prime Minister Shinzo Abe to delay or scrap the consumption tax increase planned for next October, a Reuters poll shows, highlighting concerns the hike could derail a fragile recovery.

As expectations grow that Abe will soon announce he is putting off the unpopular measure, the Reuters Corporate Survey found that nearly three out of four big companies think the economy is too weak to weather the increase.

The Abe administration and ruling coalition raised the consumption tax to 8 percent from 5 percent in April and plan to bring it to 10 percent in October 2015 in a bid to rein in massive public debt.

The April hike pushed the economy into its worst decline since the global financial crisis in the second quarter. Abe has said he will look at third-quarter GDP, due out Monday, before deciding whether to proceed with the increase.

It is being reported that Abe will postpone the hike and call a general election in an effort to lock in his grip on power.

“It’s highly risky to force through a tax hike in a situation where consumption has not recovered as expected,” a manufacturing executive said in the Reuters survey. “It’s desirable to delay it.”

The poll of 486 large manufacturers and nonmanufacturers, conducted between Oct. 27 and Monday by Nikkei Research, does not fully reflect the Bank of Japan’s Oct. 31 monetary easing, which stunned markets, pushing up Tokyo shares and weakening the yen.

Of the 250 firms answering questions on the consumption tax, 72 percent said the economy can’t cope with the planned tax hike next year, while 28 percent said it can.

Firms have become increasingly wary in recent months about the planned sales tax hike, following a run of soft economic indicators that highlighted a bigger than expected hit from April’s increase.

One-third of companies said they want the government to put off the tax hike by up to a year, a quarter called for a delay by a year and a half or more and 10 percent want the idea scrapped.

“The priority should be put on ending deflation,” said an executive at a service company. Companies participate in the monthly survey anonymously. “A tax hike must wait until prices and wages pick up to an extent that people can actually feel inflation, otherwise the economy could falter.”

Highlighting their skepticism about higher inflation and durable growth, only 16 percent expect to raise prices of their goods and services next year, 28 percent plan not to raise prices and 57 percent remain undecided.

“Abenomics” seeks to pull Japan out of 15 years of deflation and tepid growth by spurring a self-sustaining cycle of rising profits, prices and wages.

But in the survey, only 2 percent said they can raise wages next year more than this year, 31 percent expect wage hikes in line with this year, 11 percent see smaller pay rises next year and 14 percent say they can’t raise wages at all.

Last month’s survey found that 20 percent of firms thought the economy was ready for another tax hike, 33 percent said it could not weather a hike and the rest declined to say either way.

Separately, the survey found that manufacturers grew more confident for the first time in three months but expect conditions to worsen again in coming months, while sentiment among service companies slid for a second month to its lowest in a year as retailers continued to feel the pain from the sales tax hike.

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