(MENAFN - Gulf Times) Japan's government could postpone for a third time a sales tax increase currently planned for October if economic conditions deteriorate, a senior lawmaker close to Prime Minister Shinzo Abe said.
Koichi Hagiuda, acting secretary general of Abe's Liberal Democratic Party, said there were people within the party who were against the hike, in the first comment by a senior LDP member signalling that the tax hike could be delayed again.
A third delay would spark criticism that the prime minister's Abenomics policy platform has failed to strengthen the economy sufficiently to withstand tax increases and call into question Japan's commitment to reining in its debts ahead of upper house elections in the summer.
Hagiuda said it would be necessary to examine the results of the Bank of Japan's Tankan survey, one of the nation's most widely watched economic indicators, in June, putting a potential time line on when a decision may be reached.
'We need to carefully look at the June numbers and if there are signs of danger ahead, I think things might develop in a different direction because we can't lead people towards the edge of a cliff, Hagiuda said last week in an interview with streaming commentary programme.
He added that if the increase were delayed it would be important to get a mandate from voters, hinting at the upper house election that must come by the end of July. He said combining this with a lower house election would be difficult given upcoming events including the G20 summit, which Japan is hosting in June.
Speaking later in the day, Japan's top government spokesman, Yoshihide Suga, said there had been no change in the government's view that the tax increase from 8% to 10% would go ahead provided there was no turmoil on the scale of the Lehman shock during the global financial crisis.
In addition to raising questions about Japan's commitment to fixing the developed world's largest debt load, any delay in raising the levy would have a large impact on fiscal policy because the government has already planned a raft of measures to soften the negative economic impact on consumption of the hike.
A postponement would also complicate the Bank of Japan's efforts to forecast the direction of the economy and prices. The central bank meets next week to decide on policy and will give its latest projections of inflation and growth based on the assumption that the sales tax is going ahead.
Hagiuda's comments suggest that the political need to perform well in the summer upper-house elections by ditching an unpopular measure could take precedence. The lack of a major reaction in stock, bond and currency markets suggests investors still expect the sales tax to proceed as planned.
'If they say they're going to delay it now that would have quite a negative political impact, said Masamichi Adachi, senior economist at JPMorgan Securities Japan.
He said the ample scale of counter measures drawn up to soften the blow of the tax effectively offered consumers a tax cut in the first year.
Other economists are less confident the hike will take place as scheduled. In a report last month, Naohiko Baba, chief economist at Goldman Sachs Japan, said the uncertainty over whether the tax hike would go ahead had increased a lot.
'Depending on developments from now it's possible that it'll become a close call for the Abe administration, he said. Previous sales tax increases have led to sharp swings in consumption and economic contractions. This year's hike was originally scheduled for implementation in October 2015 but was first delayed after a 2014 increase caused the economy to shrink.
It was delayed again in June 2016 after Abe said major economies needed to take action to avoid a major economic crisis, a view that was rejected by his Group of Seven counterparts at a meeting the previous week. The decision also came ahead of an upper house election that summer.