Japan To Delay Sales Tax Increase According To Party Officials

Japanese PM, Shinzo Abe

Shinzo Abe has warned G7 leaders this week that the global economy is at risk of falling into another economic downturn.

Japanese Prime Minister Shinzo Abe has decided to hold off a consumption tax increase in April 2017 to sustain Japan’s economic recovery, reports said on Monday after he discussed his plan with other senior leaders.

Abe’s move was the result of sluggish growth in the Japanese economy due to “tepid domestic private consumption and the slowdown in emerging economies, especially China,” Japan Today reported. He also believed that it would be difficult for their economy to overcome deflation if they pursue the tax hike, as consumer prices dropped and retail sales fell in April for the second consecutive month, lower than the same time last year.

In a meeting with Group of Seven (G7) leaders, Abe also warned leaders of the risk of falling into a global financial crisis comparable to the “Lehman shock” in 2008 that led to the global financial crisis and economic downturn. Abe added that the current economic conditions looked similar to “the situation before Lehman.”

“We have no other options but to postpone the sales tax increase,” Habukun Shimomura, an Abe aide, said in a TV interview. “If the increase means a decline in tax revenue for the government, that would threaten our ability to achieve the goals of Abenomics.”

Yasufumi Tanahashi, Acting Secretary-General of Liberal Democratic Party (LDP) said on the NHK program, “Japan is in economic conditions that require a delay to the sales-tax increase.” It is natural for their country to take proactive measures because there is an increasing risk to global economies, he added.

The prime minister, expected to confirm the postponement before the House of Councillors election in July, was planning to raise the sales tax to 10 per cent in October 2015 but announced in November 2014 that it would be delayed until late 2019.

Abe has allegedly told officials of the Liberal Democratic Party (LDP) that the increase in sales tax in April would be delayed to October 2019.

If delayed, it will be the second time that Abe decided to forgo a tax increase after a three-percentage point rise to 8 per cent in April 2014, which led to a plunge in consumer spending that dragged Japan back into recession.

Abe’s final say on the matter would also affect the House of Representatives as it would be dissolved for a general election if the planned tax increased is delayed again.

“If the premier keeps delaying the tax hike, it means that his economic policies failed and he and his cabinet members should resign to take responsibility,” Tetsuro Fukuyama, Vice Secretary-General of the opposition Democratic Party of Japan, said on NHK.

Aso and other fiscal hawks insist that the tax hike, though unpopular for voters, is inevitable because of Japan’s huge public debt. It can also fund health and welfare services for its graying population.

Meanwhile, Abe is known for his “three-arrow” program targeting a combination of monetary easing, fiscal stimulus, and structural reform, otherwise known as “Abenomics.”

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