Tax Policy in Revision

In the midst of skepticisms over volatile international economy, there came up an argument of postponing introduction of new consumption tax rate planned in April 2017. Worrying about negative impact on the election of House of Councillors this summer, the lawmakers with Liberal Democratic Party hope Prime Minister Shinzo Abe to announce his intention to review the timing of next tax hike. It is said that the decision over consumption tax may affect Abe’s political strategy whether the election should simultaneously be done with House of Representatives.

Majority leader of House of Councillors, Kensei Mizote, unequivocally said in a TV discussion on Sunday that he would approve simultaneous election this summer with announcement of postponing consumption tax hike in advance. As the leader of the Councillors with Liberal Democratic Party, Mizote demanded Abe a preferable environment for LDP candidates, leaving behind the discussion over fiscal consolidation.

Chairwoman of LDP Policy Research Council, Tomomi Inada, followed Mizote. Quoting the fact that individual consumption had significantly dropped after introduction of 8% consumption tax rate in 2014, Inada emphasized the necessity to watch that impact or moves of international economy in determining further consumption tax hike.

Abe looks to be carefully watching the situation. “Without economic growth, there will be no fiscal consolidation. It is my basic recognition. We will lose everything, if economy slows down,” said Abe in the discussion in a committee of House of Councillors on Friday. His opinion was complete opposition to economic slogan of Jun-ichiro Koizumi administration, in which Abe was in the post of Deputy Chief Cabinet Secretary, that had been “no reform, no growth.”

A few days before, Joseph Stiglitz, Laureate of Nobel Economy Prize and Professor of Columbia University, recommended not to raise consumption tax rate in a situation that Chinese economy is slowing down in a meeting hosted by Japanese government. It became a following wind for the administration that a world prominent economist showed negative attitude against consumption tax hike.

Coalition partner, Komeito, is reluctant to have simultaneous election. “We do not realize that environment for raising consumption tax rate has changed,” said Yoshihisa Inoue, Secretary General of Komeito. The opposite parties are careful on political maneuver of Abe administration. “If they postpone it with reason of economic situation, it will mean that they recognize their mistake in economy policy,” said Policy Research Council of Democratic Party of Japan, Goshi Hosono. Abenomics will be the target of the opposites.