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Abe postpones Japan's sales-tax hike until late in 2019

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Japanese Prime Minister Shinzo Abe told lawmakers in Tokyo he would delay an increase in Japan's sales tax until 2019.

[TOKYO] Japanese Prime Minister Shinzo Abe told lawmakers in Tokyo he would delay an increase in Japan's sales tax until 2019. The move may help support consumer spending but complicates the government's efforts to tame the world's largest debt burden.

The tax decision marks an about-face for Mr Abe, who had previously said only an economic shock on the scale of the Lehman Brothers collapse or a major earthquake would prompt a delay.

The tax hike to 10 per cent from 8 per cent, previously set to take effect April 2017, will be delayed for two and a half years, Mr Abe said. While putting off the increase in the unpopular tax may improve Mr Abe's prospects in the July election, the decision will fan doubts over the government's ability to rein in a debt set to reach almost two and a half times the size of the economy.

Postponing the hike also will remove a source of funding for ballooning social security costs in one of the world's most rapidly aging countries.

"Even though many people wanted the postponement, there were a lot of voices against it as well," said Jun Okumura, a visiting scholar at the Meiji Institute for Global Affairs.

"And people who were for the postponement would also realize that Abe was eating his words by deciding to postpone it."

Mr Abe laid the groundwork for the delay at Group of Seven summit in Japan last week. In a presentation to his fellow G-7 leaders, Mr Abe put the case that the major economies needed to act to avert the danger of a major economic crisis. The G-7 leaders rejected his efforts to have language warning of the risk of a crisis included in the final communique of the meeting.

BLOOMBERG