Speculation is mounting that Prime Minister Shinzo Abe may once again postpone the consumption tax hike to 10 percent — scheduled in April 2017 — and use the decision as a reason for dissolving the Lower House for another snap election, likely along with the triennial Upper House election this summer. Two renowned U.S. economists invited to speak at recent meetings hosted by Abe to "analyze international financial and economic" conditions before Japan hosts the Group of Seven summit in May suggested that the tax hike should be postponed in view of global economic troubles. The meetings are widely viewed as a stage set by Abe to delay the tax hike for the second time, out of concern that it could further dampen consumer spending and threaten his pledge to pull Japan out of deflation.
Consumer spending, which accounts for 60 percent of Japan's gross domestic product, has remained weak since the consumption tax was raised to 8 percent in April 2014 — the first hike in 17 years — keeping the nation's economic growth fragile and uneven. It's fairly easy to imagine that the second-phase hike to 10 percent mandated in the law enacted by the previous Democratic Party of Japan-led government — which Abe already postponed by 18 months to April next year — would aggravate consumer sentiments.
It may make sense for the Abe administration to further delay the tax hike to ensure his trademark economic policy remains on its way to end deflation. But the wisdom of postponing the tax hike once again needs to be carefully weighed against the risk that the delay would pose to the nation's fiscal rehabilitation efforts. The prime minister also needs to reflect on and explain to voters why Abenomics has failed to lift the economy to a level that can accommodate the tax hike, which is supposed to help pay for the ballooning welfare costs of the rapidly aging population. Political interests, including boosting the chances of his ruling coalition's gains in upcoming elections, should have no place in the decision.