Japanese Finance Minister Naoto Kan said the government would start a debate on overhauling the sales tax next month, indicating it could consider raising the 5 percent levy to help repair the nation’s finances.
“We will start that discussion properly in March at the government tax panel,” Kan said on a Fuji Television program yesterday.
The group will also discuss corporate, income and environment taxes, he said.
Japanese Prime Minister Yukio Hatoyama has promised not to raise the sales tax for four years even if the public debt approaches twice the size of GDP. Kan had said the government would debate tax increases only after it has exhausted measures to remove wasteful spending.
Standard & Poor’s last month cut the outlook for Japan’s AA sovereign credit rating, citing the government’s failure to come up with a plan to contain the deficit.
With an upper house election scheduled in July, the Democratic Party of Japan (DPJ) government may have difficulty introducing policies that could weigh on an economy that’s recovering from its worst postwar recession. The Hatoyama Cabinet’s support fell to 35.7 percent this month from 47.1 percent last month, a Jiji Press survey showed on Friday.
The government may also set up a venue for discussing tax issues with the opposition Liberal Democratic Party, Kan said.
He added that the government would “make efforts” to meet the DPJ’s election pledge to double child-care allowances for families in the year starting in April next year. Monthly handouts of ¥13,000 (US$145) have already been budgeted for the year starting this April.
Vice finance ministers Naoki Minezaki and Yoshihiko Noda have said since last month that it may be difficult to increase the benefits because of a lack of tax revenue.
“As a basic policy, we must make efforts to meet our promise,” Kan said.
“Policymakers in charge of the issue must be careful about their remarks,” he said, adding that he had given warnings to his deputies.
The government will tread a “narrow path” of providing needed stimulus for economic growth while containing the public debt and preventing bond yields from surging, Kan said.
Japan may need to provide some fiscal stimulus to support economic growth in the budget for the year starting April next year, the finance minister added.
The finance ministry forecasts public debt will swell to ¥973 trillion by March next year, exacerbating a debt load that’s already the world’s largest. Tax collections are set to fall below the amount of bonds sold this fiscal year for the first time in 63 years.
Speaking in a separate television program yesterday,Deputy Financial Services Minister Kouhei Otsuka said the government would judge whether to implement a new round of fiscal spending by assessing the economy’s results for the first quarter.
“Currently I don’t see such a need,” Otsuka said on TV Asahi.
He said the government may be able to judge by April how GDP would perform in the three months ending March 31.
Figures to be released today will probably show that economic growth accelerated in the fourth quarter of last year, led by a recovery in exports. GDP expanded at a 3.5 percent annual rate in the three months ending Dec. 31, the fastest pace in almost two years, according to the median forecast of 23 economists polled by Bloomberg News.
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