Abe announces delay in consumption tax increase for Japan

Japanese Prime Minister Shinzo Abe formally announced Wednesday at a press conference in Tokyo that his government will delay a new consumption tax hike from April 2017 to October 2019, an epa journalist on the scene reports.

Speaking to reporters at his official residence in the Japanese capital, Abe explained that it wasn’t the right time to bring in the tax, as domestic consumption in the world’s third largest economy is still low.

The premier’s announcement comes as elections for the House of Councilors are due to be held next month.

Although Japan’s fiscal health is the worst in the developed world, the government has pledged to maintain discipline in this area in order to achieve a primary surplus by 2020, regardless of Abe’s decision on the assessment.

With an enormous volume of debt (more than double its GDP), international organizations have long been urging Tokyo to implement tax increases.

However, domestic demand has been weak since the country already rushed into a consumption tax increase (from 5 to 8 percent) in April 2014.

This lack of effect already made Abe postpone the second tranche of increase (from 8 to 10 percent) of October 2015 to April 2017.

This increase in two tranches was originally agreed in 2012 by the Abe bloc, the Liberal Democratic Party (LDP), New Komeito (its current partner in government) and the thenruling Democratic Party (DP).

The agreement was in exchange of the resignation of then Prime Minister Yoshihiko Noda, who was firmly committed to fiscal sanitation, and convening of elections that Abe’s party eventually won.

The DP and other opposition groups yesterday presented a censure motion in the lower house, ahead of the expected tax rise delay, which was widely defeated due to the votes of LDP and New Komeito, who hold a clear majority in the house.