Japan Chief Cabinet Secretary Says Sales Tax Hike Won't Be Linked to Elections
Japan's Suga Says Sales Tax Hike Won't Be Linked to Elections
(Bloomberg) -- Japanese Chief Cabinet Secretary Yoshihide Suga said the government doesn’t plan to link a sales tax hike set for October with elections, drawing a contrast with some in the ruling party who have said any delay would mean consulting voters.
Suga said in a Wednesday interview with Bloomberg News that he was confident the planned hike -- from 8% to 10% -- won’t be seen as a negative in the upper house elections expected in July, even as opposition parties call for the unpopular increase to be put off. Analysts predict the ruling coalition will keep its majority in the poll.
Debate is rumbling over whether Japan’s economy is strong enough to withstand higher taxes. While gross domestic product figures for January to March published Monday showed unexpected growth, exports, capital spending and private consumption all fell -- revealing underlying signs of weakness in the world’s third-largest economy.
“The current state of the Japanese economy is that while there is weakness in some sectors such as exports and production due to the Chinese slowdown, fundamentals such as employment and incomes are solid,” Suga said. The 70-year-old is seen as one of several prominent members of the ruling Liberal Democratic Party who might succeed Prime Minister Shinzo Abe.
Vulnerable Growth
A poll carried out by Kyodo News on May 18-19 found 57.6% of respondents were opposed to the tax increase, compared with 37.6% who were in favor of it. Three quarters of respondents to a separate poll conducted by the Asahi newspaper on the same days said that going ahead with the increase would damage the economy.
Suga reiterated that it would take an event along the lines of the 2008 financial crisis to halt the tax hike and that the government will plan stimulus measures if the increase upsets the economy. Signs of a coming crisis would not be enough to prompt a rethink of the tax, he said.
Japan’s Surprise Growth Means Tax Hike Delay Unlikely
Critics of the tax hike say it would push the economy in reverse, especially if growth is already looking vulnerable due to the overseas slowdown and escalating U.S.-China trade battle that has rattled economies worldwide. The hike’s advocates say any further delay risks a credit downgrade.
Abe’s government is increasing the levy to help ease the developed world’s biggest debt load and strengthen Japan’s social safety net. If Abe gets cold feet and calls off the hike -- as he has done twice before -- it would cause a budget crunch with the government searching for funds it has already allocated.
Koichi Hagiuda -- an Abe ally and senior LDP member -- last month gave the clearest hint yet that the tax increase wasn’t a done deal. Hagiuda flagged a Bank of Japan business sentiment report that will be released July 1 as the last economic data point likely to be used in making a decision on the tax ahead of elections.
Hagiuda added that there would be a need to “seek the will of the people” if the tax rise were to be delayed again, in what could be a hint at the prospect of a general election. He subsequently walked back his comments as a personal view.
Weathering Taxes
Suga said there was little sign of the front-loaded demand that has in the past occurred ahead of such tax increases and led to a corresponding slide in consumption afterward. Suga credited government policies with smoothing out such fluctuations and said there was strong public support for the use of the tax revenues to fund policies like free preschool education and childcare.
Suga has drawn attention for his calls to cut mobile phone charges. He also said in the interview he thought carriers might lower fees by more than 40%.
To contact the reporters on this story: Isabel Reynolds in Tokyo at ireynolds1@bloomberg.net;Emi Nobuhiro in Tokyo at enobuhiro@bloomberg.net
To contact the editors responsible for this story: Brendan Scott at bscott66@bloomberg.net, Jon Herskovitz, Karen Leigh
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