Abe Invokes U.S. Revolution in Tax Delay, Snap ElectionIsabel Reynolds and Maiko Takahashi
Prime Minister Shinzo Abe invoked the American Revolution in calling a snap election and shelving a further increase in a tax that sank Japan into recession.
“The tax system is closely linked to people’s livelihoods. No taxation without representation!” Abe told reporters in Tokyo yesterday. “This was the basis of the American War of Independence.”
Abe postponed for 18 months a planned sales-tax hike after the first installment in April led consumer spending to stagnate and the economy to contract for two straight quarters. Parliament will be dissolved on Nov. 21, he said yesterday in Tokyo, less than two years into his four-year term. Abe will probably pick Dec. 14 for the election, according to people with knowledge of the ruling party’s strategy.
Abe, whose Liberal Democratic Party holds more than 60 percent of seats in the more powerful lower house of parliament, is gambling that a divided opposition will permit the LDP to retain its hold on the legislature. That could allow him to stay in office until 2018 and accelerate his economic program to end two decades of deflation and spur growth. Should he lose too many seats, he could face a challenge in a party leadership election next September.
“It’s a risk in that Abe is calling this election in the knowledge that he will probably lose seats. The fight will be over how many,” said Katsuhiko Nakamura, executive director at Asian Forum Japan in Tokyo. “Do voters want to continue efforts to improve the economy through Abenomics, even though its benefits may not have trickled down to them, or as the opposition are saying, has Abenomics failed?”
The world’s third-biggest economy contracted 1.6 percent in the third quarter. Abe said the recession didn’t mean Abenomics -- his policy of unprecedented monetary easing, stimulus spending and structural reform to end more than a decade of falling prices -- was a failure.
“We can’t go back to that dark, troubled period” of deflation, he said.
Abe’s policies, supported by handpicked Bank of Japan Governor Haruhiko Kuroda who delivered the monetary easing, led to a plunge in the yen that fueled exports and a surge in corporate earnings. Since mid-November 2012 the benchmark Topix stock index has jumped more than 90 percent, the biggest advance in developed markets.
Those gains aren’t trickling down to the general public and voters who have endured higher prices and 15 months of declines in real wages are souring on Abe.
Growth initially accelerated before the first phase of the tax increase to 8 percent from 5 percent in April choked consumer spending and led the economy to contract 7.3 percent in the second-quarter, the biggest slide since the first three months of 2009.
The approval rating of Abe’s cabinet fell this month to 44 percent, down from a peak of 66 percent in April last year, polls by public broadcaster NHK show. Even so, the LDP has far more support than other parties. A poll carried out by broadcaster NTV from Nov. 14-16 found almost 40 percent of respondents supported the LDP, compared with about 10 percent for the next most popular option, the Democratic Party of Japan.
“The LDP always shows its policies to the electorate without running away,” Abe said. “We’ll fight this election openly on a platform including energy, nuclear and security policies,” he said, in reference to plans opposed by the majority of the electorate.
Abe also yesterday ordered ministers to start preparing a stimulus package, and said he would submit a bill for an extra budget to parliament next year.
Abe had inherited the plan for the sales tax increase from the previous government. By delaying the scheduled increase and going to the polls, Abe is staring down the fiscal hawks in his own party who continue to back the tax as a way to lower the world’s biggest debt. Sadakazu Tanigaki, a former LDP leader who agreed on the two-stage tax-hike in 2012 with then Prime Minister Yoshihiko Noda, said in September that the levy should be raised as planned.
The yen fell to a seven year low against the dollar today on speculation Abe would delay the tax increase. Bond markets showed little reaction today to the announcement, with the yield on Japan’s 10-year debt falling 2 basis points to 0.49 percent.
Fitch Ratings Ltd. views the postponement of the austerity measure as a “significant development” for the nation’s credit rating, Andrew Colquhoun, the company’s head of Asia-Pacific sovereigns, said in an e-mailed statement yesterday.
“There is no backing away from our commitment to fiscal consolidation,” Abe said yesterday. “We will keep our fiscal 2020 goal to achieve fiscal health. I am convinced that through that, there will be no loss of international trust.” Abe said there would be no second postponement of the tax, adding he would remove the legal clause allowing a delay depending on economic conditions.
Abe said there would be no second postponement of the tax, adding he would remove the legal clause allowing a delay depending on economic conditions.