Japan’s Abe to announce fresh delay in VAT increase

Japanese Prime Minister, Shinzo Abe, Wednesday announced his decision to delay VAT rise, initially scheduled for April 2017, until October 2019, in order to safeguard consumption.

Abe decided to postpone the rise to prevent it from undermining consumption, the main pillar of the world’s third largest economy, at a time of slowdown in global demand, according to official sources cited by major Japanese media.

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 to improve taxation.

However, domestic demand has been weak since the country already rushed into a VAT 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.

Abe is expected to explain in a press conference Wednesday the reasons for delaying the rise until October 2019, a date on which his current mandate will have already expired.

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

DP and other opposition groups Tuesday 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.