Moody’s Investors Service Inc. said Thursday that Prime Minister Shinzo Abe’s decision to postpone a hike in the consumption tax and compile a fiscal stimulus in the autumn is “credit negative,” questioning the government’s ability and willingness to achieve fiscal consolidation.
The U.S. debt rating agency said the government will forgo additional revenues worth around 1 percent of the nation’s gross domestic product per year by delaying the planned 2-percentage-point tax hike to October 2019 from April 2017, as announced by Abe on Wednesday.
“This will likely prevent Japan from meeting its fiscal targets, which looked optimistic even before the announcement of the delay,” Moody’s said, noting that the envisioned fiscal stimulus package will impose a further burden on state coffers.
In announcing the consumption tax hike delay, Abe cited the need to mobilize all policy tools to avert a global economic crisis.
It is the second time Abe has delayed the hike following a 3-percentage-point increase to 8 percent in 2014. The second tax hike to 10 percent was originally planned for October 2015, but Abe announced its postponement in November 2014.
Moody’s said the previous consumption tax hike “significantly bolstered” tax revenues and it estimates that the nation’s budget deficit tightened to 5.2 percent in 2015, half of its peak six years earlier.
Nevertheless, the government’s debt burden remains at the highest level among rated sovereigns, standing at 248.1 percent of GDP in 2015, Moody’s said, citing an estimate by the International Monetary Fund.
The latest change in the tax hike plan “casts doubt over the government’s commitment” to its goal of turning the primary balance into a surplus by fiscal 2020.
Moody’s expected the new, as yet undefined, fiscal stimulus to have only short-lived positive effects on the economy, noting that structural reform plans that have the potential to sustainably bolster the outlook for growth “remain notably absent” from the government’s plans.
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