BOJ’s Kuroda still wants to raise sales tax

March 7, 2016 1:49 PM (UTC+8)

 

Haruhiko Kuroda really wants to raise the sales tax next year despite the country falling into recession the last time it was increased.

BOJ Gov. Kuroda
BOJ Gov. Kuroda

The Bank of Japan Governor on Monday said that a sales tax increase scheduled for April 2017 would have a much smaller impact than the one in April 2014, which sent Japan into a recession.

“The effect of the sales tax hike will be about a bit more than half of what it was last time,” Kuroda said during a press conference following a speech in Tokyo. “Front-loaded spending and a following drop in demand won’t be as big as the last time” because the overall increase is smaller than in 2014 and reduced tax rates will be applied on some items this time, he said.

“Kuroda can’t help but indicate he wants the tax increase,” Hideo Kumano, an economist at Dai-ichi Life Research Institute, told Bloomberg Monday after Kuroda’s remarks. “We don’t know if his calculation is right. There is no momentum in consumer spending, unlike the last time, so the damage could be larger.”

Prime Minister Shinzo Abe has repeatedly been asked by lawmakers whether he’ll proceed with the tax increase.

Meanwhile, one of his top economic advisers, Etsuro Honda, last month said it should be postponed until April 2019, citing continuing weakness in the economy.

Previously, Abe had said that Japan’s consumption suffered more, and for a longer period, than anticipated after the 2014 sales tax increase. That was despite a fiscal package crafted to cushion the blow, following the experience of 1997, when an increase contributed to a recession. This time, lawmakers have been debating how to alleviate the blow by exempting some items — like food.

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