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Politics

Abe to delay sales tax hike until October 2019

TOKYO -- In a significant policy turnaround, Japanese Prime Minister Shinzo Abe intends to push back the planned consumption tax hike by two and a half years, to October 2019, government sources said.

Abe conveyed his intention to senior officials of the Liberal Democratic Party-led ruling coalition on Saturday night, the sources said. The consumption tax is currently planned to be raised from 8% to 10% next April.

Abe apparently wants to avoid negatively impacting the flat domestic economy as well as the ruling coalition's prospects in regular elections for the upper house of Japan's parliament in the summer of 2019.

Abe discussed the matter with Taro Aso, deputy prime minister and finance minister; Yoshihide Suga, his chief cabinet secretary; and Sadakazu Tanigaki, the LDP's secretary general; at his official residence on Saturday night.

Abe told the men that he intends to push back the planned tax hike by two and a half years. At least one of them objected and called for the increase to go ahead as planned next April, the sources said.

One of the senior officials said that if Abe postpones the planned tax hike, he should dissolve the lower house as he did in late 2014.

The sales tax was last raised in April of that year, from 5% to 8%. Abe decided in November 2014 to postpone a planned second increase, to 10%, by one and a half years, to next April, and dissolved the lower house for general elections.

Abe also conveyed his tax plan to a senior official of Komeito, the LDP's junior coalition partner, by telephone.

While agreeing to consider Abe's new schedule, the Komeito official told the prime minister that it is necessary to raise the tax to improve Japan's social security system, the sources said.

"No decision has been made yet [on the tax issue]," a senior government official said on Saturday night. "Discussions are now underway."

Some observers have said delaying the increase to October 2019 would make it difficult for Japan to achieve a surplus in the so-called primary balance of the national and local governments in fiscal 2020, which starts in April 2020.

Meanwhile, some ruling coalition lawmakers object to raising the sales tax before the regular upper house election in the summer of 2019.

Abe's plan to put off the hike for a second time apparently reflects a sense of economic crisis.

Japan's economy has been limping along amid a stronger yen and weak stock prices since the beginning of the year. Consumer spending, which accounts for about 60% of the country's gross domestic product, remains flat.

Some officials close to Abe said the the last sales tax increase more than two years ago has continued to hit consumer spending longer than expected.

Abe is apparently concerned that if the sales tax is raised again, the Japanese economy might lose further steam, making it even more difficult for his government to achieve its most important policy task -- pulling the economy out of a decades-long stagnation.

At a summit of leaders from the Group of Seven industrialized nations, which ended on Friday in Japan's Mie Prefecture, Abe tried to convince his counterparts that the global economy could be nearing another crisis stage.

Speaking at a press conference immediately after the G-7 summit, Abe stressed the importance of fiscal spending and acknowledged publicly for the first time that he will consider delaying the consumption tax hike.

Since first delaying the hike, Abe has repeatedly vowed to abide by the new schedule -- unless emergencies like the 2008 global financial crisis arise.

(Nikkei)

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