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PM Abe shifts to prioritizing fiscal reconstruction over economic growth

Prime Minister Shinzo Abe is seen at the prime minister's office on Aug. 15, 2017. (Mainichi)

Prime Minister Shinzo Abe's recent pledge that his government will raise the consumption tax from the current 8 percent to 10 percent in October 2019 as scheduled is apparently aimed at pleasing fellow government and ruling coalition members who place priority on fiscal reconstruction, amid the slumping Cabinet approval rating and lingering criticism over the efficacy of his signature economic policy known as "Abenomics."

While Abe has heretofore attached importance to the country's economic growth, he has apparently shifted his policy emphasis after the Aug. 3 Cabinet reshuffle, with his eyes set on the presidential election of his ruling Liberal Democratic Party (LDP) scheduled for September next year, where he evidently wants to avoid the consumption tax hike issue becoming a point of contention.

During a Yomiuri Telecasting Corp. (YTV) program aired on Aug. 5, Abe said, "The consumption tax will be raised in 2019 as scheduled." This came in contrast to his earlier remarks during an interview with the Mainichi Shimbun on July 3 that he "will look into the issue."

Since Abe returned to power in 2012, the government has twice postponed the consumption tax hike, with the prime minister stressing that "economic growth is what matters most." Abe's recent confirmation that the sales tax will be raised as scheduled has dispelled, for now, the question of whether there will be yet another consumption tax hike postponement.

In June, the Abe Cabinet approved this year's Basic Policy on Economic and Fiscal Management and Reform, which included a new goal of "steadily reducing the public debt-to-GDP ratio." As the government's goal of achieving a primary surplus by fiscal 2020 is already looking to be a hard target, Abe apparently aimed to underscore his policy success by setting the new goal of a debt-to-GDP ratio reduction that could be achieved through raising the GDP growth rate, even if the volume of government debt failed to shrink.

However, Abe toned down his cause during an NHK program on the evening of Aug. 3 shortly after the Cabinet reshuffle, saying that he would "closely watch the figures" for both the debt-to-GDP ratio and the primary balance.

Amid the sagging Cabinet popularity, a mid-ranking LDP legislator complained, "Even if I appeal to voters to support Abenomics (in local elections), they wouldn't listen to me." The shift in Abe's policy emphasis from economic growth to fiscal rehabilitation was also prompted by the moves of post-Abe hopefuls Shigeru Ishiba, former LDP secretary-general, and Internal Affairs and Communications Minister Seiko Noda, both of whom lay weight to fiscal reconstruction. As Abe hopes to be re-elected for the third consecutive time as party president in next year's LDP leadership election, the prime minister apparently wants to avoid criticism over his possible failure in economic policy by holding back on his emphasis on economic growth for now.

As Japan's economic recovery slowed down following the previous consumption tax hike from 5 percent to 8 percent in April 2014, an aide to Abe confided to the Mainichi Shimbun, "The prime minister believes that the consumption tax hike is hindering Abenomics." Abe is expected to judge carefully whether to go ahead with the next sales tax increase after keeping a close eye on the Cabinet approval rating.

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