National / Politics

Putting politics over economics, Abe may stall sales tax hike, call for double Diet poll next summer

by Linda Sieg and Tetsushi Kajimoto


Prime Minister Shinzo Abe may put off a sales tax rise and call a snap Lower House election next summer, in tandem with a poll for the upper chamber, imitating a winning strategy he used a year ago, some advisers and political sources say.

Such a move would upset fiscal conservatives in his Liberal Democratic Party and Finance Ministry officials worried about the huge public debt and social security costs in the world’s third-biggest economy.

But that might cut little ice with Abe and his aides who, political insiders say, are now formulating policy based on political, not economic, calculations.

Last year, Abe surprised lawmakers and voters by calling a Lower House election as a referendum on his plan to postpone a second rise in the unpopular national sales tax to April 2017 from October 2015. His ruling coalition won by a landslide.

“There is a high possibility he will repeat the pattern of 2014,” said Kaetsu University professor Yoichi Takahashi, a former Finance Ministry official and adviser to Abe who says he still has Abe’s ear.

“He’s developed a taste for it,” Takahashi told Reuters.

Abe has said the sales tax rise to 10 percent will go ahead on schedule barring some major shock to the economy, and denied he is considering a snap Lower House election.

Asked about the possible moves, a spokesman for the prime minister’s office said: “At this time, there is no plan or decision about elections and as for the increase of the consumption tax, there is no change in the plan.”

Last year’s decision on a snap poll came after an initial increase in the sales tax to 8 percent from 5 percent prompted a slide back into recession. The economy dodged recession in the July-September quarter, but barely grew in the first half of the current fiscal year to March 2016.

At the moment, Abe’s government “is stepping on the accelerator with monetary easing at the same time it is stepping on the brakes with a tax hike,” Chuo University professor Toichiro Asada, one of a group of pro-reflation economists who met Abe last month, told Reuters. “It’s as if before the plane reaches the stratosphere, it goes into reverse thrust.”

Signals that Abe’s closest aides are putting politics ahead of concerns about public debt were apparent in a decision last week to keep an 8 percent tax rate on foodstuffs when the sales tax rises to 10 percent.

That was a key demand from the LDP’s junior coalition partner, Komeito, whose vote-getting organization is vital for the bigger ruling party.

The deal came under fire at a key LDP panel on Wednesday but was ultimately approved. “To do what is illogical for the sake of elections is fundamentally not what politicians should do,” veteran LDP lawmaker Seiichiro Murakami, one of Abe’s few outspoken critics in the party, said after the meeting.

Abe’s right-hand man, Chief Cabinet Secretary Yoshihide Suga, sacked the LDP tax panel chief, who was dragging his feet over the tax breaks, and shut out Finance Ministry officials to accede to Komeito’s demand, administration sources said.

Postponing the sales tax rise again would open Abe to charges his Abenomics recipe of hyper-easy monetary policy, fiscal stimulus and reform has failed.

However, the complexity of the system of a lower tax rate for foodstuffs could be an excuse for delaying the overall rise, since firms need time to prepare, said Hidenori Suezawa, financial market and fiscal analyst at SMBC Nikko Securities.

Using that as an excuse to postpone the tax hike would spark opposition from within the LDP, but Abe, who faces few vocal critics in the party, could well brush aside such complaints.

“Everyone would oppose it, but they (the administration) wouldn’t listen,” one LDP lawmaker involved in health and welfare policy told Reuters.

Delaying the tax hike would set the stage for Abe to dissolve the Lower House, for which no election need be held until 2018, to seek support for the decision and crush a weak opposition camp.

“If the tax hike was to be postponed again, Abe must dissolve the Lower House to call a snap election to seek a mandate,” a source close to the administration said, adding, however, that it was too soon to predict such an outcome.

The next Diet session will begin on Jan. 4 and end on June 1 if there is no extension.

The early start means Abe could dissolve the Lower House on the final day and call a poll for the chamber to coincide with the Upper House vote. Such “double elections” have been held only twice since World War II and both times the LDP won by a landslide.

Simultaneous polls would be unpopular with the smaller Komeito, whose organization would be strained — one reason some analysts said it was unlikely — and with many Lower House LDP lawmakers, who faced voters less than two years before.

Abe and his aides, however, may see things differently.

“They (Abe’s close circle) have confidence to win this time,” the LDP lawmaker said.