Slowdown bolsters case for delay in sales tax hike

The government has set itself a stringent target for eliminating the budget deficit and currently intends to raise the sales tax again in 2017 to help it achieve that end. The economic weakness that followed the last tax hike suggests a rethink would be wise. To put the public finances on a sustainable footing, policymakers would be best advised to delay the hike to allow domestic demand to recover, price pressures to strengthen and nominal GDP growth to pick up. The slowdown in economic activity that is likely to be highlighted in the upcoming GDP data would provide a good excuse for such a policy shift.