Japan’s prime minister has called a snap election for next month in a bold attempt to shore up support for his decision to postpone an unpopular tax rise and breathe life into his “Abenomics” growth strategy.
Shinzo Abe told a televised news conference on Tuesday that he would dissolve the lower house of parliament on Friday to pave the way for an election on 14 December. He added that he would delay a rise in the consumption [sales] tax, from 8% to 10%, until April 2017, 18 months later than planned.
Abe’s move came a day after quarterly GDP figures showed Japan had slipped back into recession for the first time since 2012. The economy shrank by an annualised 1.6% in July to September after plunging 7.3% in the second quarter.
A rise in the same tax this April – the first in 17 years – from 5% to 8%, has been widely blamed for hammering consumer spending, the driver of 60% of the world’s third-biggest economy.
“I’ve listened to lots of opinions … and taking those into account, and to ensure that Abenomics will succeed, I decided today to postpone the consumption tax hike by 18 months to April 2017,” Abe said.
He added that the “three arrows” of Abenomics were having the desired effect, citing rises in employment and corporate revenues. But he said wages and consumption, two key indicators that have largely remained flat, “should” increase in time.
Abe said Monday’s GDP figures meant a 3% rise in the sales tax next October would weigh heavily on consumer spending and jeopardise attempts to stave off deflation.
The GDP data was an unexpected setback for Abe’s three-pronged economic programme, which combines massive government spending with cheap credit and structural reforms. In echoes of the former UK prime minister Lady Thatcher, his political hero, Abe said there was “no alternative” to his growth-led strategy.