Jul 23 (Nikkei) - Japan's ruling Liberal Democratic Party and its junior partner Komeito won a majority of seats in the country's upper house election on Sunday, paving the way for Prime Minister Shinzo Abe's planned consumption tax hike in October.
The tax increase was one of the key election issues.
Despite the risk of extending the current period of low inflation, Abe remains committed to a higher tax. "The global economy has downward risks, but we will not hesitate to take fiscal action," he said at a news conference on Monday afternoon.
Abe insisted that measures such as free education fee and financial assistance to low-income earners will "bolster domestic consumption."
But doubts over the higher tax persist, not only among Japanese economists and scholars who fear it will weigh further on a slowing economy, but also from some in the U.S., who advocate applying the controversial Modern Monetary Theory to cure the country's anemic inflation.
"We do not feel comfortable with a tax increase," said Abe on Sunday night after his coalition was forecast to have won a majority. "But I think it's needed to cover the costs of building a social security system that serves all generations, and to ensure the public's trust in the country."
The coalition feels that raising the tax to 10% from the current 8% is necessary to fund changes to the social security system. All baby boomers will be over the age of 75 by 2025, and the government has been gradually expanding the system to support all generations, including families with small children and low-income households.
This has made the new tax imperative, the government claims, and even the elderly will be asked to pay more into the system than before.
The Cabinet Office approved an economic reform blueprint in June, confirming the higher tax. To soften the blow and help stimulate the economy, the blueprint also calls for raising the minimum hourly wage to 1,000 yen ($9.27) from the current 874 yen at an "early date."
