Fri, Jun 21, 2013 - Page 15 News List

Japan mulls remedies for tax hike

Bloomberg

Japan’s government is ready to provide extra spending if a sales-tax increase next year damps economic growth, a senior finance ministry official said.

“Naturally, there will be a decline in economic growth” following the tax increase planned for April, Yuzuru Takeuchi, parliamentary secretary for finance and a lower house legislator, said in an interview yesterday in Tokyo.

“We must take appropriate action to counter this” and it is possible to provide more spending, possibly using extra tax collected this year, he said.

Japanese Prime Minister Shinzo Abe is rolling out fiscal and monetary stimulus to help pull the economy out of a more than decade-long deflationary malaise. The government is grappling with supporting growth while trying to slow the increase in Japan’s debt burden, the developed world’s largest.

“If the government doesn’t announce a further fiscal package, we’re likely to see some payback” in growth from the boost this year from government spending, said Masaaki Kanno, chief Japan economist at JPMorgan Chase & Co in Tokyo.

The economy may shrink an annualized 3.9 percent in the second quarter of next year after the sales tax is raised to 8 percent from its current 5 percent, according to the median forecast of economists surveyed by Bloomberg News.

The tax will be further increased to 10 percent in 2015.

Tax revenues for the current fiscal year will probably exceed an initial estimate and the government can tap that resource for spending, said Takeuchi, a lawmaker in the ruling coalition’s New Komeito party.

One ruling-party lawmaker who has advised Abe on monetary policy said earlier this month that some budget steps ought to be taken to reduce the impact of the sales-tax boost.

“We must consider fiscal measures in next year’s budget to alleviate its harmful effects,” Kozo Yamamoto, a Liberal Democratic Party politician who Abe has said has been an influence on his economic thinking, said in a June 7 interview.

“That could be a handout to low income people,” Yamamoto added.

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