(Bloomberg) -- Japanese Chief Cabinet Secretary Yoshihide Suga said the government doesn’t plan to link a sales tax hike set for October with an election, drawing a contrast with some in the ruling party who have said any delay would mean consulting voters.
Suga said in a Wednesday interview with Bloomberg News that the planned hike -- from 8% to 10% -- won’t be seen as a negative in upper house elections set for July, in which analysts predict the Liberal Democratic Party’s ruling coalition will keep its majority.
“The current state of the Japanese economy is that while there is weakness in some sectors such as exports and production due to the Chinese slowdown, fundamentals such as employment and incomes are solid,” Suga said.
Critics of the tax hike say it would push the world’s third-largest economy in reverse, especially if growth is already looking vulnerable due to the overseas slowdown and escalating U.S.-China trade battle that has rattled economies worldwide. Prime Minister Shinzo Abe’s government is hiking the levy to help ease the developed world’s biggest debt load and strengthen Japan’s social safety net.
Stimulus Measures
Suga said it would take something along the lines of a Lehman-shock type hit to halt the tax hike and that the government will plan stimulus measures if the increase upsets the economy. The hike’s advocates say any further delay risks a credit downgrade.
Koichi Hagiuda -- an Abe ally and senior LDP member -- last month gave the clearest hint yet that the tax increase wasn’t a done deal. Hagiuda flagged a Bank of Japan business sentiment report that will be released July 1 as the last economic data point likely to be used in making a decision on the tax ahead of elections.
Hagiuda added that there would be a need to “seek the will of the people” if the tax rise were to be delayed again, in what could be a hint at the prospect of a general election. He subsequently walked back his comments as a personal view.
Weathering Taxes
Debate is mounting over whether Japan’s economy is strong enough to withstand higher taxes. While the gross domestic product figures for January to March that were published Monday showed unexpected growth, exports, capital spending and private consumption all fell.
Suga, seen as one of several prominent members of the ruling Liberal Democratic Party who might succeed Abe, has won popular support for his calls to cut mobile phone charges. He said in the interview he thought carriers might lower fees by more than 40%.
To contact the reporters on this story: Isabel Reynolds in Tokyo at ireynolds1@bloomberg.net;Emi Nobuhiro in Tokyo at enobuhiro@bloomberg.net
To contact the editors responsible for this story: Brendan Scott at bscott66@bloomberg.net, Jon Herskovitz, Karen Leigh
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