Motoshige Itoh, a prominent member of the Council on Economic and Fiscal Policy – Japan’s top government advisory panel – said that the government should stand by its plan to go ahead with the second increment of the sales tax hike to 10 percent next year. Itoh said that the Japanese economy has shown signs that it is resilient enough to withstand the burden.
Itoh, speaking at the Reuters Japan Summit, said that Japan’s policymakers do not have to worry about Japan’s massive debt burden at the moment. Rather, it should focus on maintaining the public’s trust in the government’s finances. “It makes sense to raise the sales tax again to 10 percent,” Itoh, who is also a professor of economics at Tokyo University, said. “Some people are reluctant to do so, but these people are actually very much in the minority. Most people don’t seem to be too worried,” he added. In April this year, the Japanese government raised the sales tax to 8 percent from 5 percent, part of a plan to boost tax revenue and reduce the burden of welfare spending on the government. Some lawmakers had aggressively opposed the plan, but looking at the numbers since the April tax hike, it seems that the expected dip in consumer spending is likely to be short-lived. More than that, Japan’s industry leaders seem to be confident about the economy.
Later this year, Japan Prime Minister Shinzo Abe must decide if the administration is willing to go ahead with another increase in the sales tax to 10 percent, which will be scheduled for October 2015. Abe’s administration is concentrated on fiscal reform, a very urgent task for the world’s third-biggest economy. Public debt is far above 200 percent of gross domestic product, the biggest debt burden among developed countries. In a bid to end deflation, the Bank of Japan has expanded its government debt and asset purchases in April last year to meet a 2 percent inflation target that it set for roughly a year from now.
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