Japanese policymakers debate over adopting a sales tax hike in early 2017 amid stabilization in global financial markets and signs of recovery in the economy. Although instances like an appreciating yen, fall in equities and consensus of yet another Japanese recession had put off the April 2017 tax hike on board, those fundamentals have changed scope.
Some ruling-party lawmakers are instead proposing to let the scheduled boost in the consumption levy to 10 pct from 8 pct proceeds, and to address any hit to the economy through an enlarged fiscal package, Bloomberg reported.
The Japanese Liberal Democratic Party, led by lawmaker Kozo Yamamoto, one of the architects of Prime Minister Shinzo Abe's economic policy strategy plans to submit a proposal Friday for as much as an extra 30 trillion yen (USD273 billion) in supplementary fiscal measures over the 2016 and 2017 fiscal years.
“It is obvious that simply announcing a delay will not improve the economy. We need to remove uncertainty as far as possible and introduce policies that bolster weak demand,” Yamamoto said in a copy of the proposal obtained by Bloomberg.
Japan has narrowly escaped recession recently in Q1 owing to additional consumption from the leap year day. Meanwhile, the Japanese government, led by Prime Minister Abe plans to raise the sales tax from the current 8 pct to 10 pct next April unless a savage of the extent of Lehman Brothers strike hits the nation’s boundaries.
U.S. Nobel laureate and economist Joseph Stiglitz and economist Paul Krugman have both spoken to the panel and advised Abe to delay the tax increase and focus on fiscal efforts to boost a recovery. But OECD Secretary-General Angel Gurria told the panel Japan should stick with its the tax plan and raise it further to pare public debt, reports said.
“The entire tax hike could be effectively be nullified by increased expenditure,” said Daiju Aoki, Economist, UBS Group AG, Tokyo in a recent note this week.
Bank of Japan official Aoki recommended to increase the sales tax as planned to 10 pct in April 2017 and not to raise it further for some time. He further proposed an extra spending of 10 trillion yen for injecting economic stimulus and 5-10 trillion yen for revival of the quake-hit Kumamoto prefecture in fiscal 2016, which ends in March.
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