In what seems like an about face, Japan’s Prime Minister Shinzo Abe said he will delay an increase in Japan’s sales tax until 2019. The decision to shelve the planned second stage of the consumption tax hike ahead of the Upper House election next month pleased most consumers who do not look forward to paying more tax.
Japanese economists, however, are concerned that the delay will fan doubts over the government’s ability to rein in a debt burden soon to reach almost two and a half times the size of the economy.
The Prime Minister had up until now, assured policy officials that his efforts to strengthen the economy were strong enough to withstand a tax increase and that only a major economic shock such as the “Lehman Brothers collapse or a major earthquake” could delay the taxes implementation.
Tax Postponed Until October 2019
The tax hike to raise the rate from 8 percent to 10 percent was scheduled to take effect in April 2017, but will now be pushed back to October 2019.
At the Liberal Democratic Party meeting Wednesday, Abe told lawmakers that “Japan will proceed with structural reforms and mobilize fiscal policy to achieve strong growth….in that context, I decided to postpone the increase in the sales tax to 10 percent by two-and-a-half years.”
Abe also vowed to win the upper house election next month but whether he wins or loses, his decision to delay the tax will make it even harder for future leaders to introduce it at another time.
According to Yoshimitsu Kobayashi, head of Japan Association of Corporate Executives, one of the nation’s most influential business lobby groups, “If the Abe administration, which is a very powerful government, does not raise the consumption tax, no administration in the future would dare do it.”