Abe Retreats From Sales Tax Increase As Well As Fiscal Reform Plans

Japanese Prime Minister Shinzo Abe has announced on June 1 for delaying a sales tax increase till 2019. The much expected announcement also indicates his retreat from plans for fiscal reforms following growing signs of weakening the economy.

The decision is believed to help Abe winning the upper house polls scheduled to take place on July 10. However, his plans for curbing huge public debt and manage fund for ballooning social welfare events of a fast ageing population may face limbo following postponing the fiscal reforms.

Meanwhile, oppositions have criticized the retreat move since his ‘Abenomics’ stimulus policies have failed in accelerating the Japanese growth. In reply to the criticism, Abe stresses the need to minimize risks posed by external factors, reports Reuters.

Prior to the announcement, Abe has repeatedly insisted that only an economic shock with the vicinity of Lehman Brothers collapse or a major earthquake may cause delay in implementing the reform plan. But now, he abandons the plan apparently to confirm the electoral triumph. Abe is expected to elaborate his decision through a press conference at 6 pm in Tokyo where in, he may represent a fresh economic stimulus package, according to a report published in Bloomberg.

During Abe’s retreating announcement, he has also committed for stimulation of private demand while accelerating infrastructure projects. He has also cited the necessity for mobilizing all policy tools in supporting the global economy.

Widespread criticisms have been observed when the sales tax has been increased from 5% to 8% in 2013. The move has eventually hit consumption severely and delay in increasing the sales tax by further 2% is believed to minimize the already incurred losses. The move is also expected to increase consumption power, reports CNBC.

However, the decision fuels doubt over government’s ability to reduce the debt burden which is over 200% of Japan’s GDP. Commoners have a mixed reaction over the postponement and the (postponement) supporters will realize in due course that Abe has made a u-turn through delaying the implementation, forecasts Jun Okumura, a visiting scholar at the Meiji Institute for Global Affairs.     

Abe has prepared the stage for announcing the delay during last week’s G7 summit that took place in Japan. He has even tried to insert warnings over further global economic crisis in the final communique of the meeting. However, his efforts haven’t been supported by the other G7 leaders and eventually have gone in to vein.