Japan could raise sales tax in steps of 1% each time: Abe adviser

An economic adviser to Prime Minister Shinzo Abe said Thursday that the government should consider as an option raising the sales tax in steps of 1 percent per time.

"We can raise (the tax rate) gradually by 1 percent at a time if there are worries" about the economy, Koichi Hamada, professor emeritus of economics at Yale University, said in a lecture in Nagoya.

The government plans to raise the consumption tax rate, now 5 percent, to 8 percent next April and to 10 percent in October 2015. It plans to make a final judgment this fall on the rate hike.

The foundation of Abe's economic policies dubbed "Abenomics," entailing aggressive monetary easing and an increase in public works spending, is largely influenced by the policy views of Hamada.

Hamada said raising the sales tax rate in stages by 1 percent each time "creates less friction" in the economy than raising it sharply. "What we could also do is first raise it by 2 percent and then by 1 percent at a time."

The 77-year-old scholar also reiterated his argument that the government should consider delaying the planned tax hike if economic conditions are not good enough. In particular, he stressed the importance of such economic data as the jobs-to-applicants ratio and the jobless rate.

But he also said Japan needs to raise the sales tax rate in the medium to long term, while cutting corporate taxes to boost the global competitiveness of Japanese companies.

Hamada, who has served as one of Abe's special advisers since his administration was formed last December, is known as an advocate of a reflationary approach aimed at realizing an economic recovery by pushing up prices through monetary easing.