Despite calls within the government to defer or decrease the planned tax hike, a senior official says that Prime Minister Shinzo Abe will most likely push through with this drastic measure that will attempt to pull Japan out of its decades-long deflation. Takeshi Noda, head of the ruling Liberal Democratic Party, said Abe is determined to pursue what should be the most significant fiscal reform to be implemented in the past years.
Economic advisers have urged the government to exercise caution in applying the tax hike because it might derail the slight economic growth Japan has been experiencing the past fee months. But there are also fears that deferring the increase in taxes will erode confidence in the country and drive increased long-term interest rates. After the LDP‘s landslide win at the recently concluded Upper House elections, Abe said they will look into whether or not the tax hike will be beneficial to the economy and ordered studies to look for alternative ways to implement the impending tax hike. But Noda said all these alternatives are just “armchair theories” and after his recent meeting with the Prime Minister, there seems to be no hesitation on his part to push through with the tough economic reforms the country needs.
Japan has the worst public debt in the industrialized world, at 240% of its Gross Domestic Product. Ever since Abe came back into power last December, it has been a tough challenge to balance bringing economic growth and controlling public finances as well. The LDP, its junior coalition partner New Komeito and the opposition Democratic Party of Japan came to an agreement last year to raise taxes by 8% in April 2014 and then to 10% in October 2015. However the law they enacted to allow this also requires the government to confirm that the economy can carry such an increase. Abe will be looking at the GDP figures by next month and then come to a decision on the tax hikes by October.
[ via Reuters ]