For Abe, high stakes on sales-tax hike

It’s different this time. The four most dangerous words in markets, according to former U.S. Treasury Secretary Larry Summers.

With Japan set to raise its sales tax for the first time since 1997, Prime Minister Shinzo Abe’s political future rides on a different outcome than last time - when the nation slid into a recession and the premier lost his job. To avoid a spending slump, Abe, 59, is poised to unveil a stimulus plan to counter the 3 percentage point bump in the sales levy.

“Abe must know that breaking the economy would mean the end of Abenomics,” said Masayuki Kichikawa, chief Japan economist at Bank of America in Tokyo, referring to the initiative to reflate the world’s third-largest economy after two decades of stagnation. “The miserable failure of the 1997 sales-tax rise is stuck in the minds of Japanese politicians.”

The prime minister, who is scheduled to speak tomorrow on his plans for taxes and an economic-support package, was left little room to abandon the planned sales-tax increase he inherited from the previous government. Cabinet members, an independent panel of experts and Bank of Japan Gov. Haruhiko Kuroda all advised proceeding with the rise to 8 percent in April, an unpopular move designed to shore up revenue for a government with the world’s largest public debt burden.

“Abe understands the danger -- if he fails, no one will be able to touch the tax for the next 15 years,” Economy Minister Akira Amari said yesterday.

Bloomberg