(Bloomberg) -- Japan needs more fiscal stimulus ahead of a planned sales tax hike, according to Susumu Takahashi, an economic adviser to the government and chairman emeritus of the Japan Research Institute.
Takahashi, who serves as a private-sector member of the government’s Council on Economic and Fiscal Policy, said that policy measures are needed to manage fluctuations in demand ahead of the tax increase to 10 percent from 8 percent. The change is slated for October 2019.
"I think we still need more measures to strengthen Japan’s economic growth and raise the potential growth rate," he said in an interview on Tuesday. "We need to use money and put forward policies, including fiscal stimulus, right away to speed that up." Central bank data released on Wednesday showed the economy’s potential growth rate unchanged at 0.85 percent.
Looming Tax Hike
Japan plunged into recession when the government pushed the tax to 8 percent from 5 percent in 2014. Abe has since twice put off another scheduled increase. He has said repeatedly that he will go ahead with the 2019 move.
Takahashi said the risk to Japan’s economy this time is smaller, noting that the hike is only 2 percentage points and certain items will be excluded.
But he still sees a great deal at stake. If conditions worsen, "we can’t apply large-scale fiscal measures," Takahashi said. "This is our best, and our last, chance to escape deflation." He said fiscal policy should be applied around the time of the tax hike to avoid a big hit to consumption.
In addition to measures designed to support consumption, like plans to encourage people to buy cars and houses, Takahashi said that policies to raise productivity should also be included in the budget for the next fiscal year. He pointed to investments in artificial intelligence and infrastructure to handle Japan’s ongoing tourism boom as examples.
Japan will eventually have to rein in spending to address its massive public debt, according to Takahashi, but that discussion is still some ways off. "The sales tax is going up, so it’s hard to increase the burden on people even more in the short term," he said.
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