Japanese Minister of State for Economic and Fiscal Policy Kaoru Yosano said yesterday the government may need to spend between ￥10 trillion and ￥15 trillion (US$184 billion) on reconstruction in the wake of the devastating earthquake that hit the country’s northeast in March.
The government may need to issue bonds to meet the cost, but should not do so without coming up with ways to pay for redemption, Yosano said, signaling that some form of tax hike would be inevitable.
“I understand those who say we need to issue bonds for quake [reconstruction], but we shouldn’t borrow recklessly without thinking about how to pay the money back,” Yosano told a television program.
“If we were to issue bonds for reconstruction, we need to decide in how many years we would pay the money back and how. That’s important in maintaining market trust in Japan’s fiscal state,” he said.
Japan is reeling from the triple disaster of an earthquake, tsunami and prolonged nuclear crisis, with the government struggling to find ways to pay for the biggest reconstruction effort since the aftermath of World War II.
Damage from the quake pushed Japan into recession with the economy shrinking much more than expected in the first quarter of the year and set to contract again in the second quarter as power shortages and supply chain disruptions hit factory output.
The Diet earlier this month passed the government’s ￥4 trillion first extra budget to meet immediate disaster relief costs.
The government plans to compile a sizable second extra budget for reconstruction, although lawmakers are divided on how to pay for the extra spending.
Japan’s public debt, at double the size of its US$5 trillion economy, is the biggest among major industrialized economies, limiting room for additional fiscal stimulus.
However, lawmakers are hesitant to raise tax, particularly the politically sensitive sales tax, for fear of scaring voters away, even as the cost of quake reconstruction adds to the huge social welfare spending for a rapidly ageing society.
Yosano, regarded as a fiscal hawk, has said that raising tax is crucial for Japan to meet ballooning social welfare costs and fix the country’s tattered finances.