Japanese panel backs sales tax coupled with stimulus

Reuters, TOKYO

Mon, Sep 02, 2013 - Page 15

Japan’s government won backing for a controversial decision to raise the national sales tax next year after influential members of a special advisory panel said the step would not threaten economic recovery or business confidence if it was coupled with other stimulus.

“Japan’s economy is steady at the moment and we should raise the tax as planned,” Hiroshi Yoshikawa, a University of Tokyo economist, told reporters on Saturday as he left the last session of a week-long, government hearing that also featured business leaders and consumer advocates.

Japanese Prime Minister Shinzo Abe convened the panel to hear a wide range of views on whether to press ahead with a planned hike in the consumption tax to 8 percent from the current 5 percent in April.

Unless Abe changes the plan, the sales tax will be raised to 10 percent in October 2015.

Advocates, including officials at the Japanese Ministry of Finance, say raising the tax would be an important first step in trying to lower public debt, which is the worst among industrialized countries at more than twice the size of Japan’s economy.

Abe is expected to make a decision in the next several weeks.

“Most people on the panel said we should raise the sales tax and that the risks of not doing so outweighed the risks associated with proceeding as scheduled,” Japanese Economics Minister Akira Amari said.

Abe has made ending 15 years of deflation and revitalizing the economy among his top priorities, so some of his advisers and even some members of his ruling Liberal Democratic Party worry the sales tax hike will slow consumption.

Japan’s economy emerged from recession last year and data for much of this year has shown the benefits of monetary easing from the central bank and the government’s drive to accelerate growth.

The jobless rate is at the lowest in almost five years, there are tentative signs wages will start rising and consumer spending has been strong. Exports grew at the fastest pace in nearly three years in July, while core consumer prices rose at the fastest pace in nearly five years.

Many on the 60-member tax advisory panel, which included labor union heads and executives from companies ranging from a small spring maker to Toyota Motor Corp, said they could accept tax hikes if the government took some steps to offset the expected dip in consumer spending.

Toyota president Akio Toyoda urged the government to cut the tax on vehicles when the consumption tax is hiked to 8 percent as an offset. Others urged public works investment or a tax incentive for companies to invest in new plant and equipment.

When Japan last hiked the sales tax from 3 percent to 5 percent in 1997, consumer spending tumbled by 13 percent in the quarter after the higher tax went into effect. That was followed by a recession.