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Ito Backs Tax Plan as Hamada Calls for Gradual Rise

(Corrects to say two panel members instead of three in third paragraph after Cabinet Office corrected Economy Minister’s comments. Adds Prime Minister’s title in third paragraph. This story was first published Aug. 27.)

Aug. 27 (Bloomberg) -- Tokyo University Professor Takatoshi Ito said Japan’s sales tax should be increased as planned as a panel of economists and financial experts considering the levy split on the issue.

“Economic indicators show the economy isn’t in a bad state and raising the sales tax wouldn’t slow the economy or the bid to end deflation,” Ito, a former finance ministry official, told reporters today after the meeting in Tokyo. Not proceeding in line with the plan could lead to falling stocks, a stronger yen and a spike in bond yields, Ito wrote in a statement submitted to the panel.

Ito was among five of the nine people on today’s panel to agree with the plan to increase the tax to 8 percent in April from the current 5 percent, Economy Minister Akira Amari told reporters after the meeting. Prime Minister Shinzo Abe’s adviser Koichi Hamada was one of two panel members to call for an incremental rise by 1 percentage point a year, according to Amari.

Today’s panel was the second of seven being held this week, providing 60 people including business leaders and academics a platform to relay their views on the tax to the government. Japan’s leaders are trying to fuel growth without worsening a public debt more than twice the size of the economy.

Ito said the incremental tax-increase proposal “would have huge costs in terms of the time taken to create and pass laws and the political energy required.” He said in June that a sales tax of at least 15 percent was needed for fiscal reform.

Gradual Increase

Hamada, an architect of Abe’s economic strategy known as Abenomics, wrote in his statement today that the tax-increase should be postponed for a year or, if technically possible, raised incrementally.

Former Bank of Japan Deputy Governor Kazumasa Iwata yesterday also urged a gradual approach, and called for 5 trillion yen ($51 billion) in stimulus spending if the tax is raised as planned.

Finance Minister Taro Aso and Bank of Japan Governor Haruhiko Kuroda are among those attending the meetings. Aso said today that a failure to stem rising social welfare costs might make it necessary to further increase the tax.

Abe will make the final decision on the tax “at the latest” by early October, Amari said earlier this week. The prime minister can postpone or cancel the increase should he determine the economy can’t bear the impact.

Abe will take into account the views of the expert panels and data including revised gross domestic product for the second quarter, due Sept. 9.

To contact the reporters on this story: Andy Sharp in Tokyo at asharp5@bloomberg.net; James Mayger in Tokyo at jmayger@bloomberg.net

To contact the editor responsible for this story: Paul Panckhurst at ppanckhurst@bloomberg.net

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