Abe must ensure economic recovery, fiscal reconstruction are compatible

02oct13_ANN_Abe.jpg

Prime Minister Shinzo Abe speaks during a press conference at the Prime Pinister’s Office on Tuesday.

The true value of the Abe administration, which emphasises the revitalisation of the economy, will be put to the test as it tackles the task of realising economic recovery alongside fiscal rehabilitation.

Prime Minister Shinzo Abe announced Tuesday that the government will raise the consumption tax rate from 5 per cent to 8 per cent in April as planned. He also said the government will implement a 5 trillion yen ($S 64.2 billion) economic stimulus package, including a corporate tax cut.

We believe the tax hike planed for next spring should have been postponed to accomplish the main task of dragging the nation out of its deflationary phase. However, now that the prime minister has made this important decision, we have no choice but to accept it.

It would be terrible if the consumption tax hike stalled the economy. The government must ensure that its economic management policy is sound.

Job recovery halfway

At a press conference Tuesday, Abe explained the reason for going ahead with the tax increase, saying: "By helping the nation regain hope, vitality and confidence...we're determined to pass a sustainable social security system to the next generation. This is the responsibility my Cabinet must fulfil."

Securing a stable revenue source for ever-rising social security expenses-such as public pension, health care and nursing care programs-through the consumption tax hike is the foundation for implementing comprehensive social security and tax reforms agreed on by the Liberal Democratic Party, New Komeito and the Democratic Party of Japan.

The central government's debts have grown beyond the 1 quadrillion yen mark, the highest among major economic powers.

In the financial market and elsewhere, there had been concerns that if the government postponed the consumption tax hike planned for next April, government bond prices would nosedive.

In light of the rapid acceleration of graying society and the chronically low birthrate, we believe the course of action taken toward raising the tax rate is reasonable.

What is problematic is the possibility that the economy, which has at long last started turning upward, will lose steam due to the tax rate hike.

The Bank of Japan's closely watched Tankan survey showed that business sentiment among major companies improved significantly in September, posting the highest reading since the collapse of the Lehman Brothers in autumn 2008. Yet the pace of recovery is expected to slow down in the months ahead.

Even more worrisome is the employment situation. The jobless rate in August rose to the 4 per cent level for the first time in three months, while wages of salaried workers have continued to decline.

"By resolutely implementing bold economic measures, we'll seize this opportunity for economic recovery," Abe said.

Become a fan on Facebook