Delaying a sales tax increase in Japan scheduled for April next year makes “some sense” because the weak economy means a tax rise is not likely to increase revenue, ratings agency Standard & Poor’s said on Tuesday.
Going ahead with the plan could push Japan’s economy into several quarters of anaemic economic growth, Kim Eng Tan, S&P’s Asia-Pacific senior director of sovereign ratings, told Reuters in an interview.
Delaying the tax hike would not be an indication that Japan’s government is giving up on fiscal consolidation, Tan said.
However, the government does need to introduce bolder structural reforms to push up growth and consumer prices, because there is limited room to expand fiscal and monetary policy, Tan said.
Prime Minister Shinzo Abe will delay the tax hike by two and a half years, sources told Reuters, due to worries the move could push down consumer spending even further and possibly hasten a return to deflation.
In September last year S&P cut its rating on Japan to A+ from AA-, which is four notches below its top rating of AAA, because it doubts the government’s will reverse economic deterioration. The agency raised its outlook to stable from negative.