A proposed sales tax hike has been put on the backburner as ruling party politicians fear the economy may not be able to manage the increase.
The government’s previous goal to double the sales tax to 10 percent by 2015 is now on hold. The Democratic Party members have demanded that no increase happen unless sustainable economic recovery is made. A deadline of June 20 has come and gone with no tax increase put in place by the government.
Rating agencies differ from party leader opinion stating that higher taxes are needed in order to avoid Social Security costs from further damaging the economy. Japan debt ratio is twice that of its economy. Social Security costs amount to 92.4 trillion Yen ($1.15 trillion) fiscal year to date and increase by a trillion each year due to the aging population.
Chief economist Takahie Kiuchi from Nomura Securites said “The chance of a downgrade is increasing, and it seems the government is losing its ability to chart a course that repairs public finances.”
The government is divided on the issue as last week a government panel recommended higher taxes be applied and funneled for reconstruction work necessary after the tsunami.
Top financial rating companies like Moody’s Investors Services, Standard & Poor’s and Fitch all foresee a negative impact to Japan’s sovereign rating.