Japan’s most significant fiscal reform in years – a planned increase in the country’s sales tax – could be delayed or watered down in a move that might rattle financial markets and amount to an own goal for the prime minister.
Despite holding the strongest political mandate of any prime minister in years, there are signs Shinzo Abe is seriously rethinking the plan out of concern it could derail a nascent economic recovery he has crafted with an aggressive policy mix, dubbed Abenomics.
Abe says he will decide in the autumn whether to proceed with the first part of the two-stage plan after gauging the state of the economic recovery, especially GDP data that is due on Sept 9. The tax, similar to general sales tax and value added tax in other countries, is due to rise to 8 percent in April 2014 and then 10 percent in 2015.
Abe does not want to raise the tax, given the likely economic and political repercussions, but he understands the risks of upsetting the markets by giving the appearance of backtracking on promised reform, said a person involved in crafting economic policies. At 5 percent, Japan and Canada have the lowest equivalent consumption taxes in the Organisation for Economic Co-operation and Development, OECD data shows.