Mon, Dec 30, 2013 - Page 15 News List

Aso says spending may rise to support economy

DELICATE BALANCE:An increase in Japan’s sales tax is needed to raise money to pay off public debt, but it may also damage consumer spending and a recovery

Bloomberg

Japanese Finance Minister Taro Aso refused to rule out the possibility an extra budget will be needed next year to support the economy, while saying it’s best if it is not needed.

“My honest feeling is that it would be best if we don’t have to do it, but I won’t say there’s no possibility,” Aso said in an interview with public broadcaster NHK that ran yesterday. “We can’t say whether we can avoid it until we see figures from the July to September period.”

Extra spending next year would risk expanding Japan’s public debt, which is the world’s heaviest at more than twice the size of annual economic output. The government this month unveiled a record budget plan for the year starting April 1, when a sales tax increase is forecast by analysts to cause the economy to shrink in the second quarter.

“The sales tax hike will have a sizable harmful effect on the economy,” said Yasuhide Yajima, the chief economist in Tokyo at NLI Research Institute.

For Japanese Prime Minister Shinzo Abe, “it’s vital to keep expectations buoyant. He can’t afford to just deliver negative news to the public while trying to end deflation,” Yajima said.

Government ministers and the ruling coalition compiled the ¥95.88 trillion (US$911 billion) budget proposal for next fiscal year on Dec. 21. Japan’s public debt has ballooned to more than ¥1 quadrillion and is expected by the IMF to grow to the equivalent of 244 percent of GDP this year.

Japan’s economy will contract an annualized 3.9 percent in the three months after the consumption tax rate increases to 8 percent from 5 percent on April 1, according to the median estimate of economists surveyed by Bloomberg News. GDP will probably grow 1.8 percent in the following quarter, and expand 1.6 percent next year, the polls show.

Abe said the government will decide whether to further boost the sales tax as planned to 10 percent in 2015 after studying July to September economic data. He came to power in December last year pledging to use stimulus measures to overcome 15 years of consumer price declines that have weighed on the world’s third-largest economy.

“We haven’t yet ended deflation, and if we lose this chance, we might not be able to for the next 20 years,” Abe said in an interview with Radio Nippon recorded on Tuesday and broadcast yesterday. “If that happens, we wouldn’t be able to restore Japan’s fiscal health.”

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