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Opinions divided among experts on planned sales tax hike

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(Globalpost/GlobalPost)

Expert opinion is divided over whether Prime Minister Shinzo Abe should proceed with a sales tax hike next year as planned, a Kyodo News poll of a government panel of experts showed Wednesday.

Among 33 of the panel's 60 members who responded, 19 support the tax increase, including those doing so with reservations, while two oppose the increase and three did not indicate a clear stance on the matter.

Nine think the government ought to delay the scheduled tax hike or review the margin of increase, reflecting concern the currently planned increase may depress consumer and business spending, hampering Abe's effort to lift Japan out of nearly two decades of deflation.

Assuming the tax hike is carried out, to avert a downturn in the world's third-largest economy, 16 said the Abe administration should compile an extra budget for the current fiscal year through next March, and 12 said the corporate tax rate should be cut.

The expert government panel, which began hearings Monday, will listen to a total of 60 people from a variety of sectors. It will hold sessions every day through Saturday and report to Abe before he decides as soon as next month whether to implement the tax hike.

Under legislation enacted last year, the sales tax is supposed to be raised in two steps -- from the current 5 percent to 8 percent next April, and to 10 percent in October 2015 -- to raise money needed to cover swelling social security costs for Japan's aging population.

On Wednesday, Toyota Motor Corp. President Akio Toyoda threw his support behind the planned tax hike, but urged Abe to work hard to shore up the economy.

"I favor a consumption tax hike in order not to pass the bills on to future generations. But I want (the government) to consider how to help the country's economy achieve sustainable growth," Toyoda told reporters after attending a meeting of the panel.

Toyoda, current chairman of the Japan Automobile Manufacturers Association, added he called for the Abe administration to reform auto taxation to prevent automobile sales from languishing following the tax hike.

Former Deputy Governor of the Bank of Japan Kazumasa Iwata, who spoke to the panel on Monday, also proposed the government take steps to ease the potential downward pressure on domestic demand if it raises the consumption tax rate as planned.

Koichi Hamada, Abe's special adviser, told reporters after a meeting of the panel on Tuesday that he told the government to postpone the planned sales tax hike by a year to safeguard Japan's nascent economic recovery.

However, the professor emeritus of economics at Yale University and mastermind of the prime minister's "Abenomics" policies said during a TV program Wednesday that Abe's administration should still move forward with the tax hike one year later, even if the economy is not on an uptrend at that point.

Hamada said if Japan continues to delay a consumption tax hike, that could hurt the nation's fiscal discipline, affecting the sovereign debt market.

Abe has said he will make a final decision after hearing opinions from the panel and examining Japan's economic growth data in the April-June period, among other factors. Revised figures for second-quarter gross domestic product are due out Sept. 9.

A consumption tax increase is regarded by some international economic organizations as key to Japan's fiscal rehabilitation, as the country's fiscal health is the worst among major developed economies with its public debt level at more than 200 percent of GDP.

==Kyodo

http://www.globalpost.com/dispatch/news/kyodo-news-international/130828/opinions-divided-among-experts-planned-sales-tax-hike