The effect of the new coronavirus on the economy could be worse than the 2008 financial crisis, economic revitalization minister Yasutoshi Nishimura said.
Speaking on Fuji TV, Nishimura called Sunday for strong measures to protect the economy and said proper consideration should be given to whether reducing the consumption tax would bolster consumer spending.
The economy was already teetering on the brink of recession when the effect of the virus began to kick in, partly due to an increase in the consumption tax to 10 percent in October, up from 8 percent. Some have called for the increase to be reversed to help encourage consumption.
“This may be on a par with the Lehman shock, or even worse,” Nishimura said, referring to the 2008 collapse of the Lehman Brothers U.S. investment bank. “We need measures on the same scale. They should be bold and not limited by what’s been done before.”
His comments came after Hiroshige Seko, a senior lawmaker with the ruling Liberal Democratic Party and former industry minister, said cutting taxes was one option, while adding that moving the consumption tax back to its previous level would be difficult.
Seko was speaking during an interview with BS TV Tokyo.
He said nothing should be ruled out of discussions and mentioned the possibility of expanding an existing rebate system on purchases. Economic measures should be designed to bolster consumption, he said.
Japan will aim to spearhead cooperation among major nations around the world to support a weakening global economy, Prime Minister Shinzo Abe said during a Saturday news conference, warning that policy coordination frameworks such as the Group of Seven and Group of 20 are critical to fight “disruptions” in world financial markets.
The remarks came after the White House said U.S. President Donald Trump will hold a video conference regarding the coronavirus with G7 leaders early this week.
While the G7 and G20 nations have pledged to take all necessary steps to fend off the shock to their economies from the virus, that did little to prevent asset prices from crumbling last week on fears the epidemic could trigger a global recession.
Abe also said his administration will consider various options, including the proposal to temporarily cut the consumption tax to support an economy suffering “quite a big blow” from the coronavirus outbreak.
Abe’s remarks underscored concern among policymakers over the growing risk of recession in Japan as travel bans and event cancellations cool consumption.
The government is already working on a large-scale fiscal spending package.
Abe has instructed his close aide and LDP heavyweight Akira Amari to consider tax cuts to help the economy, the Nikkei financial newspaper reported Saturday.
Amari, head of the LDP’s tax panel, said he discussed with Abe “various options on budget and tax measures” to underpin growth, the Nikkei said.
Tax cuts have long been ruled out as possible measures to prop up economic growth due to the need for Japan to rein in its public debt which, at twice the size of its economy, is the largest among major economies.
The government so far has brushed aside calls from some lawmakers to cut the consumption tax.
Finance Minister Taro Aso said last week his ministry will not oppose tax cuts as part of measures to support the economy but did not elaborate on what kind of levy could be reduced.
Abe said Saturday that “the near-term focus is on containing the virus. After that, we need to put Japan’s economy back on a solid footing. We will take bold, unprecedented steps to achieve this.”
Abe also said Japan is still preparing to host the Olympic Games in Tokyo this summer despite widening concern about the viability of the games given the global coronavirus outbreak.