Considering Tax Hike Delay

In the midst of slowdown of Japanese economy, Prime Minister Shinzo Abe reportedly considers postponing introduction of higher rate of consumption tax planned in April 2017. Abe once promised to raise the rate to 10% in the House of Representatives election campaign 2014. However, he and his staffs have fundamental uneasiness that higher tax rate may damage Abenomics in a crucial way.

Sankei Shimbun reported that Abe had already decided to delay consumption tax hike and would announce it in May. Abe convened meetings with world prominent economists to hear opinion on Japanese economic policy last month. In those meetings, some economists, including Professor of Columbia University, Joseph Stiglitz, or Professor of City University of New York, Paul Krugman, were negative on raising tax rate or recommended postponing. The reports about Abe’s decision appeared after those meetings.

Lawmakers of Liberal Democratic Party are mostly delighted with possibility of lightened burden for the election. It is broadly recognized that higher consumption tax rate will further cool Japanese economy down and leading party is responsible for the handling of economic policy. The delay of the tax hike will be a message of determination to improve economy.

The decision will, however, give the opposite parties a good chance of criticizing Abe administration. Abe has already postponed consumption tax hike once planned in October 2015. In this decision, he publicly promised that he would never change new schedule set in April 2017. To hear opinion from the nation, Abe used power of dissolving House of Representatives and achieved a victory in the election.

The opposite parties require resignation of Abe, accusing the broken promise that he would never delay the timing of tax hike again. “If he postpone the consumption tax hike again, it will apparently be violation of campaign promise. Do not dissolve House of Representatives, but step down as Prime Minister,” told President of Democratic Party, Katsuya Okada. Japan Communist Party and others appeal in the same line.

Even the leaders of leading parties started being negative on tax hike delay. Abe has been saying that without crucial situation in economy paralleled with Lehman Shock or East Japan Great Earthquake, tax hike would be exercised as scheduled. “Economy is not as urgent as Lehman Shock so far,” told Vice-President of LDP, Masahiko Komura. Komeito is also reluctant to the postponing, because it may lead to simultaneous election that the party does not like. Stakes are still so high.