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Nobel prize winner warns Japan against sales tax hike

Japan tax

​Nobel prize winner and US economist Joseph Stiglitz has urged Japan's Prime Minister Shinzo Abe to abandon plans to raise consumption tax in April 2017, amid weaker-than-expected economic conditions around the world.

The economics professor, who attended an economic seminar with Abe and a number of other top government officials, said that increasing consumption tax would be "going in the wrong direction”.

That event was the first in a series of seminars aimed at airing various views on the global economic and financial situation from domestic and international experts.

The government's final decision is expected to take the views shared at the seminars into account.

Another four seminars have been scheduled by the Japanese government ahead of the Group of Seven summit in Japan in May.

The session on Wednesday (March 16th) saw Mr Abe urge Mr Stiglitz to give "candid opinions" about the proposals, adding that global economic conditions would be the main theme of the summit.

It seems the 2001 Nobel Prize winner did not hesitate in taking the prime minister up on his offer, concluding: “A few years ago, no one would have anticipated that the global economy would be as weak as it is today.

“When economic circumstances change, you have to adapt your policy to the new economic circumstance.”

He added that despite Japan boasting a “very strong” monetary policy and an ability to stimulate the economy, there were nevertheless limits surrounding their impact.

Mr Stiglitz insisted that fiscal policy should now be the main focus for the government as it braces itself for another wave of global financial uncertainty.

Though Japan had a “very strong” monetary policy and had stimulated the economy, there were “limits” to the impact of monetary policy, the winner of the 2001 Nobel Prize in economics said, while adding fiscal policy should now be the focus.

Abe open to change

The economic slowdown in China and a slump in crude oil prices have been the main contributors in experts forecasting a gloomy outlook for the global economy.

The current state has also fuelled speculation that Tokyo could already delay the sales tax hike, which currently stands at eight per cent.

Mr Abe has reportedly already said he is open to delaying the move, which would see it increase to ten per cent, with fears that if done in April 2017 it may spark a sharp decline in economic activity weigh down on tax revenues.

Finance minister Taro Aso added that any decision on the raising of consumption tax will be done on a political basis, with the government keen to first assess the potential impact on the economy.

The news brings into doubt the momentum of 'Abenomics', which the Economist once described as a "mix of reflation, government spending and a growth strategy designed to jolt the economy out of suspended animation that has gripped it for more than two decades".