Abe likely to proceed with tax hike

TOKYO: Japanese Prime Minister Shinzo Abe will likely proceed with raising the national sales tax hike as planned, despite calls within his government to delay or water down the increase, a senior official in Abe's ruling party told Reuters on Wednesday.

Abe has shown no signs that he would change the tax hike plans to accommodate advisers who are urging him to go slow, as that could wreck confidence in the country and push up long-term interest rates, Takeshi Noda, head of the Liberal Democratic Party's tax commission, told Reuters.

The planned sales tax hike is Tokyo's most significant fiscal reform in decades, but the recent debate over alternatives has raised the possibility that Abe might postpone the tightening or ease the tempo of the two-stage plan to double the tax to 10% in two years.

Concerned that the tax hike could derail Japan's nascent economic recovery, Abe has ordered a study of alternatives for implementing the tax increases, including introducing them more gradually, government sources have told Reuters.

But Noda in an interview dismissed the alternatives – championed by academic advisers to the premier – as "armchair theory".

Asked if the sales tax would be raised as planned, he said in an interview: "Of course."

Noda, who recently met with the premier, said Abe gave no impression that he was wavering on the tax plan.

"Confidence in Japan would fall, and government bond yields would be affected" if Tokyo gives the impression that it is faltering on the tax issue, Noda said. "That could be fatal."

"The biggest risk to Abenomics is a spike in interest rates," Noda said.

Abe returned to power in December pledging to revive the world's third-largest economy with his policy mix of aggressive fiscal and monetary stimulus and promises of pro-growth reforms.

With Japan's public debt topping 240% of its GDP, the worst in the industrial world, the prime minister is struggling to balance reviving economic growth against bringing public finances under control.

Under an agreement last year between the LDP, its coalition partner and the previous ruling party, Japan enacted a law calling for the sales tax to be raised to 8% next April and to 10% in October 2015.

But the law requires the government to confirm that the economy is strong enough to withstand the tax increase. Government officials say Abe will look at economic data, especially GDP figures due on Sept 9, and decide on the tax by early October.

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