Policymakers probably won't allow an economic slowdown to derail the planned increase in the consumption tax from 2014, according to a former Finance Ministry official who oversaw the boost in the tax to 5 percent in 1997.
"The government will probably push through the tax increase even if the pace of economic growth slows somewhat" and deflation lingers, Shigeki Morinobu, 62, formerly a director of the ministry's Tax Bureau and currently a professor at Chuo University's law school in Tokyo, said this week. "Failure to go through with the increase may spur investor concern that Japan lacks the will to raise taxes."
Only a crisis akin to the collapse of Lehman Brothers Holdings Inc. in 2008 would compel the government to abandon Prime Minister Yoshihiko Noda's plan to double the levy, which won approval in the Lower House this week, Morinobu said. The economy slid into a 20-month recession when the tax was raised from 3 percent in 1997 as consumer spending cooled and the Asian financial crisis crimped demand.