Japan’s upcoming consumption tax hike will hurt growth, but it’s a necessary sacrifice to inject investor confidence in the country’s ability to address its colossal debt pile, said Jerry Schiff, mission chief for Japan at the International Monetary Fund.
Japan is due to raise its sales tax in April to 8 percent from 5 percent, and to 10 percent in October 2015, in a move that will help the economy cut its fiscal debt of over 200 percent of GDP.
Critics of the tax say the measure could hamper Japan’s nascent economic recovery, and recent media reports have suggested Prime Minister Shinzo Abe is considering delaying the hike.
“It (tax hikes measure) will slow (Japan’s) growth by 0.3 percent to 0.4 percent,” said Schiff. “But you need to weigh against that the large benefits that it will generate by cementing some confidence in the ability and willingness of the government to take on the fiscal problem,” he said.
“We don’t think the tax will put the recovery off its rails,” he added.