Abe Ally Urges More Monetary Easing to Buffer Sales Tax Increase
More monetary easing and a cut in corporate taxes are needed to offset the effects of a planned increase in Japan’s sales tax, a former secretary general of the ruling Liberal Democratic Party said in an interview.
“We must escape deflation and be able to tell the public that it will not return,” as a condition for raising the tax, Hidenao Nakagawa, who retired from parliament before last December’s general election, said on Sept. 3. Policies to counter the negative effects on gross domestic product are also required, he said.
Prime Minister Shinzo Abe is weighing the risk of choking the recovery against the need for more revenue to help Japan offset the world’s largest debt burden. Abe is set to decide in early October on the plan he inherited when he won office in December to raise the levy to 8 percent in April and 10 percent in 2015 from the current 5 percent.
Bank of Japan Governor Haruhiko Kuroda has set a two-year horizon for achieving the 2 percent annual inflation target adopted in January at Abe’s urging. He has agreed to buy about 70 percent of planned government bond issues as part of an unprecedented program of monetary easing that aims to boost growth and weaken the yen.
“More monetary easing is needed,” said Nakagawa. “There can be a debate about the scale and the method.” He also cited wage rises, deregulation and reform of government spending as necessary components of a package to improve the economy.
If the economic conditions are not met, the sales tax should not be increased, Nakagawa said. Any leap in fuel prices resulting from tensions in Syria would constitute an emergency and should result in the tax increase being postponed, he said.
Nakagawa, who served as secretary general during Abe’s first term in office, remains in touch with senior officials. He dined with Abe and Chief Cabinet Secretary Yoshihide Suga last month, according to a Kyodo News log of Abe’s activities.
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