Aso Falls Into Line With Supporters of Japan Tax-Hike Delay (3)

(Bloomberg) -- Finance Minister Taro Aso reversed course Tuesday, joining the ranks of lawmakers calling for a delay in a planned increase in Japan’s sales tax.

The about-face is a blow to officials at the finance ministry, who are among the strongest advocates for raising the levy to help contain Japan’s debt burden. Aso told his U.S. counterpart at a Group of Seven nations meeting as recently as May 21 that the tax hike would proceed as scheduled in April 2017, barring an economic shock on the level of the Lehman Brothers collapse or the 2011 earthquake in northern Japan.

“For Japan, the biggest problem is that private consumption hasn’t risen,” Aso told reporters in Tokyo Tuesday. “That’s 60 percent of GDP that isn’t increasing, and so to deal with that, now isn’t the time to raise the sales tax again.”

The ruling parties approved the delay Tuesday, LDP Secretary General Sadakazu Tanigaki told reporters. Prime Minister Shinzo Abe’s office announced that he will hold a press conference at 6 p.m. Wednesday.

Ballooning Debt

A delay might improve Abe’s prospects in an upper-house election in July, though would renew doubts over Japan’s ability to rein in its ballooning debt and fund social security for its rapidly aging population. Cabinet Office projections show that the government wouldn’t reach its fiscal targets even if the tax were raised as planned.

Aso added that Japan still must fix its finances and that there has been no change to the government’s target of achieving a primary balance surplus in the fiscal year starting April 2020. After being reported as saying last weekend that an election must be called to consult the people if the tax increase was delayed, Aso said Tuesday that election timing was entirely up to the prime minister.

Senior officials from the ruling Liberal Democratic Party and coalition partner Komeito said Monday that Abe wants to put off the tax increase for 2 1/2 years.

Komeito chief Natsuo Yamaguchi said Abe appeared “very determined” to postpone the increase. LDP vice president Masahiko Komura echoed that view while Toshihiro Nikai, chairman of the LDP’s general council, said he understood the prime minister won’t call a general election to coincide with an upper-house vote in July, as many had speculated.

New View

Abe, who inherited from the previous government the unpopular plan for a sales tax hike, repeatedly has said he would raise it to 10 percent in April 2017 from the current 8 percent unless there was a crisis like the “Lehman shock” or a major earthquake.

Then last week, in a presentation to his fellow G-7 leaders, Abe made the case that the global economy was on the brink of just such a disaster and that urgent measures needed to be taken.

A previous increase in the tax to 8 percent in 2014 pushed Japan into a recession, prompting the government to delay the next phase of the hike that had been scheduled for October 2015.

Public Support

Almost two thirds of respondents to a poll published by the Nikkei newspaper Monday said they opposed the consumption tax increase.

Japan’s lower house rejected a no-confidence motion against Abe’s cabinet, submitted by opposition parties who said the Abenomics policy program had failed.

After Abe took office in 2012, drastic monetary easing weakened the yen, bolstering exporters’ profits and share prices, until the yen strengthened again in 2016. The economy has zigzagged between contraction and some growth, consumer spending is weak and inflation data last week showed that prices are falling again. Data released Tuesday showed a modest increase in factory output and a decline in household spending.

(Updates with Abe’s office announcing time of press conference Wednesday.)

--With assistance from Keiko Ujikane and Maiko Takahashi To contact the reporters on this story: James Mayger in Tokyo at jmayger@bloomberg.net, Isabel Reynolds in Tokyo at ireynolds1@bloomberg.net. To contact the editors responsible for this story: Brett Miller at bmiller30@bloomberg.net, Jodi Schneider, Andrew Davis

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