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Gov't starts debate on medium-term fiscal plan, but details unclear


The government on Tuesday started discussions to map out its medium-term fiscal rehabilitation plan and draft an initial budget for the next fiscal year, without clarifying its decision on whether to go ahead with a planned sales tax hike next year.

At a meeting of the Council on Economic and Fiscal Policy, four private members of the panel called for the deficit of the general-account budget, which is expected to total around 23 trillion yen in fiscal 2013, to be slashed to about 15 trillion yen in fiscal 2015.

The reduction of the budget shortfall would be required for Prime Minister Shinzo Abe's government to achieve its goal of halving the ratio of the primary balance deficit to the nation's gross domestic product by fiscal 2015 from the fiscal 2010 level, the private members said.

A deficit in the balance means the country cannot finance government spending other than debt-servicing cost without issuing new bonds.

While emphasizing the necessity of measures to prevent the planned consumption tax hike from slowing economic recovery, the four members also asked the government to carry out the tax hike and cut expenditure.

During the meeting, Abe sought cooperation from the private-sector members and his Cabinet ministers, saying, "I would like you to accelerate efforts to simultaneously attain economic revitalization and fiscal consolidation."

But the medium-term plan, which may be hammered out as early as next week, is unlikely to give details on how to pave the way for fiscal reconstruction, as Abe has said it "will not be something that would fix a hike in the sales tax."

Japan has been requested by the Group of 20 leading economies to craft a "credible" medium-term fiscal reform plan before their summit to be held in St. Petersburg, Russia, on Sept. 5-6.

Given that Abe is expected to make a final decision in October on whether to lift the tax rate to 8 percent from the current 5 percent in April 2014, Tokyo will likely explain to its G-20 counterparts at the summit that the fiscal plan is not premised on the tax hike, making it uncertain for Abe to gain international acceptance.

Economic and fiscal policy minister Akira Amari told a press conference after the meeting that he will present the outline of the medium-term fiscal reform plan at the next gathering of the government's key economic panel slated for early next month.

Some lawmakers and government officials have recently urged Abe to put off the tax hike, arguing it is likely to dampen consumer spending and the overall economy, which has shown signs of emerging from nearly two decades of deflation.

Amari, however, said that not raising the consumption tax rate is "unthinkable" unless the economy is thrown into turmoil by an event such as the 2008 global financial crisis triggered by the collapse of U.S. investment bank Lehman Brothers Holdings Inc.

Bank of Japan Governor Haruhiko Kuroda, meanwhile, said at the meeting that a sales tax hike next year will likely push down Japan's economic growth by 0.7 percentage points in fiscal 2014 through March 2015, according to government officials.

The tax rate is scheduled to be eventually increased to 10 percent in October 2015.

Japan's economy may grow slightly in fiscal 2015, which will start in April 2015, as consumers could rush to make purchases before the second stage of the tax hike during the first half of the fiscal year but the effect could wane later in the year, Kuroda was quoted as saying by the officials.

The median forecast of the nine-member BOJ Policy Board showed in July that the economy is expected to expand 1.3 percent in fiscal 2014 and 1.5 percent in fiscal 2015.