Nobel Prize-winning economist Joseph Stiglitz yesterday urged Japan to postpone a planned tax hike, warning that boosting the tariff could hurt the debt-hit economy as international markets slump.
The comments come as Japanese Prime Minister Shinzo Abe mulls postponing the consumption tax hike ahead of summer elections, in a possible about-face from a previously repeated pledge to carry it out.
Stiglitz, a long-time critic of austerity schemes pursued by Western governments, met with Abe and other top officials ahead of a G7 summit in Japan in May.
He cautioned against a consumption tax hike scheduled for April next year that would increase the levy from 8 percent to 10 percent.
“A consumption tax increase now is going in the wrong direction,” Stiglitz told reporters after the meeting.
“A few years ago, no one would have anticipated that the global economy would be as weak as it is today. When economic circumstances change, you have to adapt your policy,” added Stiglitz, who advised former US president Bill Clinton and won the 2001 Nobel Prize in Economics.
Analysts have speculated Abe wants to delay the unpopular tax hike — which was decided before he returned to power — as lawmakers head to an upper house election expected in July.
The last consumption tax hike from 5 percent to 8 percent in April 2014 — the nation’s first in 17 years — slowed consumption and pushed the world’s third-largest economy into a brief recession.
Critics said Japan must increase tax revenues in the face of soaring debts and to pay for the ballooning cost of welfare as the population rapidly ages. Government coffers are deep in the red with public debt standing at twice the size of the economy, the worst among industrialized economies.
Stiglitz’s views echo similar calls from Abe’s close advisers, who are against the hike because it risks further slowing Japan’s stagnant economy.
The current tax hike plan already marks a delay after Abe argued for putting it off for 18 months, saying implementing the original schedule of October last year would derail the nation’s fragile recovery.
Abe has since pledged to stick with the new plan — barring a global crisis akin to the 2008 financial turmoil that slowed the international economy.
Meanwhile, the Bank of Japan (BOJ) has quite a lot of room to cut its key interest rate further and theoretically it could go to minus-0.5 percent, Governor Haruhiko Kuroda said in parliament yesterday.
While the BOJ kept policy unchanged on Tuesday, Kuroda underscored in a news conference a readiness to move on any of three fronts: a reduction in the present minus-0.1 percent rate, an acceleration in boosting the monetary base or an expansion of purchases of riskier assets.
Questioned by a lawmaker yesterday, he agreed that it would be theoretically possible to lower the rate to minus-0.5 percent.
With the BOJ far from its 2 percent inflation goal and economic growth stalling, most analysts have seen additional stimulus as just a matter of time. The stakes are rising for Kuroda, with household and corporate sentiment waning and investors questioning whether monetary policy is reaching its limits.
On Tuesday, Kuroda said that he does not need to wait to see the full impact of the negative rate before acting again, if change is needed.
Additional reporting by Bloomberg
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