The government is considering assessing the economic impact to be caused by the planned sales tax hike based on several alternatives on the timing or the size of the tax increase, government sources said Saturday.
The alternatives will likely include the idea of gradually raising the 5 percent tax rate by 1 percent each time, against the plan under a law enacted last August to raise it to 8 percent next April and then to 10 percent in October 2015.
The Council on Fiscal and Economic Policy is expected to invite experts to discuss the matter before Prime Minister Shinzo Abe decides on the tax hike in the fall, the sources said.
Abe, for his part, said Saturday that while the government's midterm fiscal plan to be compiled in August will show a framework for cutting the nation's fiscal deficit, it will not position a sales tax hike as a matter of course.
The fiscal plan "will not be something that would fix a hike in the sales tax," Abe said at a press conference in the Philippines during his trip to Southeast Asia.
His remarks suggest that the fiscal plan will not show a detailed path for fulfilling the government's pledge to halve the ratio of the primary balance deficit to the country's gross domestic product by fiscal 2015 from the level in fiscal 2010, although a sales tax hike is widely viewed as necessary to achieve the goal.
Abe stressed the government will make a final decision on whether to raise the sales tax rate to 8 percent next April after examining economic data due out in August and thereafter. "We need to decide after thoroughly assessing economic conditions," he said.
In a related development, the government has decided to take the unusual step of setting no ceilings for ministries' initial budget requests in its guidelines for the fiscal 2014 budget to be released in early August, in light of the later decision on the consumption tax, other sources said.
The government usually set ceilings on general expenditures in order to curb the requests, which otherwise tend to increase, but sees the need to allow flexibility as it cannot predict revenues until the major tax issue is resolved, they said.
Instead, it is considering suggesting in the guidelines that the requests be kept at levels similar to the fiscal 2013 budget, and specify numerical ceilings in the fall or later when budget compilation work becomes full-blown, they said.
The guidelines will allow social security costs to increase some 1 trillion yen in line with the aging of the population while seeking a roughly 10 percent cut from the fiscal 2013 budget in public works and other policy programs, so the money saved can cover priority areas such as Abe's growth strategy as well as social security, according to the sources.