Japan PM delays tax hike in blow for Abenomics

Japanese Prime Minister Shinzo Abe on Wednesday said he would delay a sales tax hike that threatened to derail the fragile economy, but analysts said it highlighted the failure of his years-long efforts to spark growth.

The decision by Abe also drew a warning from credit rating agency Fitch, which said it would "undermine the credibility" of Japan's commitment to paying down one of the world's biggest national debts.

Abe had repeatedly said he would follow through on the levy hike, planned for 2017, after it was already delayed once.

But on Wednesday he said raising the tariff to 10 percent from eight percent would be pushed back by more than two years to late 2019, when he is likely no longer in office.

That means the tough job of raising taxes will be pushed onto his successor.

Abe insisted that delaying the tax hike would give Tokyo breathing room to take his faltering Abenomics growth plan "one step further".

"We will do our utmost to create an environment conducive to raising the tax from October 2019," he said.

The Japanese leader -- who swept to power in late 2012 on a pledge to kick-start growth with his Abenomics policy blitz -- is expected to announce a fresh spending package within several months.

The top-selling Yomiuri newspaper earlier said the stimulus could reach 10 trillion yen ($90 billion).

Japan's economy remains weak and there were widespread fears that another sales tax hike would hammer the world's number three economy by taking a bite out of consumer spending.

"It's hard to say that 'Abenomics' has been successful if (Abe) has to postpone a tax hike," said Masamichi Adachi, senior economist at JPMorgan in Tokyo.

Japan's last sales tax rise in April 2014 was blamed for pushing Japan into a brief recession.

But critics say it is crucial to shrink a debt mountain that is more than twice the size of the economy, as social welfare costs balloon in the ageing nation.

- 'Clear risks' -

Much of Japan's debt is held domestically at low interest rates which have allowed the country to avoid a Greek-style cash crunch.

But a loss of confidence in Tokyo's ability to pay its debts could send interest rates soaring and increase the risk of a bankruptcy.

Ratings agencies have previously cut Japan's credit standing over its debt.

Fitch on Wednesday warned of a possible move, but said it would await more details on Tokyo's fiscal plans "before drawing conclusions for Japan's ratings".

By contrast, Standard & Poor's said its would not change its rating, noting that there were "clear risks" to Japan's economy if the tax was raised next year, citing weakness overseas and a strong yen.

Last week at a G7 summit, Abe hinted at the delay as he warned over a global economic "crisis".

Abe compared it to the situation before the collapse of Lehman Brothers in 2008, which set off the global financial crisis.

That claim was rejected by some of his rich nation counterparts, and many saw it as a bid to justify delaying the tax hike.

Previously, Abe said his government would only push back the long-planned tax hike in the event of "a grave situation" -- on the scale of the collapse of Lehman Brothers or a major earthquake.

Abe's blueprint for igniting the once-powerhouse economy consisted of a mix of massive central bank monetary easing, government spending and efforts to slash red tape.

The plan appeared to work at first as it sharply weakened the yen, a plus for Japan's exporters, and which set off a stock market rally.

But that initial optimism has given way to growing doubts as the economy struggles to gain traction over three years later.

Japan holds upper house parliamentary elections in July and Abe's time in office ends in September 2018 unless his party approves an exceptional measure to extend his leadership.

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Leftists have long made a sport of blasting neoliberalism, the market-guided economic doctrine championed by the International Monetary Fund, as boosting poverty and inequality.

Now that view is coming from inside the IMF itself. A new assessment from Fund economists suggests the neoliberal approach to creating sustainable growth in developing countries can have its own lasting ill effects.

Their views offer support to legions of critics in countries like Greece and Portugal that have endured tough IMF-designed "austerity" programs to straighten out their finances.

"The benefits of some policies that are an important part of the neoliberal agenda appear to have been somewhat overplayed," they said in an article in the June edition of the Fund's Finance & Development magazine.

"Instead of delivering growth, some neoliberal policies have increased inequality, in turn jeopardizing durable expansion."

The authors, three members of the IMF research department, said the traditional approach to helping countries build their economies through tight government spending, privatization, freer trade and open capital flows can have "prominent" costs in terms of greater inequality.

"Increased inequality in turn hurts the level and sustainability of growth," they said.

"Even if growth is the sole or main purpose of the neoliberal agenda, advocates of that agenda still need to pay attention to the distributional effects."

While the three say "there is much to cheer in the neoliberal agenda," they single out two key tenets as problems: removing all restrictions on capital movement; and implementing budget austerity on governments with unsustainable deficits and debt.

The economists acknowledge the great benefits to a developing country of incoming capital.

But they say that freed of constraints, foreign capital can be short-term and capricious, causing great volatility in markets and "raising the odds of a crash."

In 150 cases since 1980 of emerging economies which experienced a sharp surge in capital inflows, 20 percent ended with a financial crisis, they said.

On top of that, financial openness leads to "appreciable" increases in inequality in a country's population, they said.

Austerity policies, which often aim to curb the size of the state, not only "generate substantial welfare costs" but also "hurt demand -- and thus worsen employment and unemployment."

"The costs of the tax increases or expenditure cuts required to bring down the debt may be much larger than the reduced crisis risk engendered by the lower debt."

"In practice, episodes of fiscal consolidation have been followed, on average, by drops rather than by expansions in output," they added.

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Forest-destroying palm oil powers cars in EU: report

Palm oil produced on tropical plantations that drive deforestation has become a major biofuel for vehicles in the European Union, industry figures released Tuesday by an environmental group revealed.

In 2014, nearly half of the palm oil used in Europe wound up in the gas tanks of cars and trucks, according to data compiled by the EU vegetable oil industry association Fediol, and obtained by Brussels-based NGO Transport & Environment.

Second only to rapeseed as a biofuel, overall palm oil use in EU countries jumped six-fold from 2010 to 2015, accounting for a 34 percent increase in biodiesel consumption during that period, the figures showed.

Palm oil is also found in food, animal feed and cosmetics, but use in these sectors has dropped in Europe, in part due to pressure from environmental groups on major corporations.

Up to now, how palm oil was distributed across products in the EU was not known.

"We now know why the industry is withholding these numbers," said Jos Dings, executive director of Transport & Environment.

"They show the ugly truth of Europe's biofuel policy, which drives tropical deforestation, increases transport emissions, and does nothing to help European farmers," he said in a statement.

Rules set in place in 2009 require that 10 percent of energy for transport in all EU countries comes from renewable sources by 2020.

- 10 million litres a day -

In practice, that has meant biofuels, since electric-powered vehicles account for a negligible percentage of energy in the transport sector.

Recent research, however, has shown that the climate impact of so-called "first generation" biofuels -- mainly rapeseed, palm, sunflower and soy oil -- is in fact greater than for fossil fuels, once deforestation is taken into account.

These biofuels also compete for ever-scarcer land needed to grow food.

Produced mostly in Malaysia and Indonesia, palm oil causes three times more greenhouse gas emissions per unit of energy than diesel fuel, according to a recent analysis.

Recognising that the continued use of these crops clash with goals for slashing greenhouse gas emissions, The EU last year imposed a cap -- seven percent -- on the biofuels produced from food crops.

They have also established sustainability criteria for such fuels, and encouraged the development of so-called "advanced" biofuels made from municipal waste, recycled cooking oil or agricultural waste.

Transport & Environment and other green groups have called for the removal of food-based biofuels from the EU's transport energy mix after 2020.

The Fediol figures showed that 3.5 billion litres of palm oil were burned as fuel in 2014, some 10 million litres per day.

A Fediol staff member said director general Nathalie Lecocq was not available to comment, and an email sent to the industry group was not answered.

Deforestation from all sources is responsible for about 12 percent of the greenhouse gases that drive global warming.

Clear-cutting and burning to make way for palm oil plantations also cause health-wrecking pollution and destroy some of the planet?s richest "hotspots" for biodiversity.

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