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Japan to decide on sales tax hike schedule late September: economics minister

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(Globalpost/GlobalPost)

By Leika Kihara and Stanley White

TOKYO (Reuters) - The Japanese government will make a decision on whether to raise the sales tax as planned some time from late September to early October, the economics minister said, in what is becoming a test of whether Japan's politicians can enact painful but necessary reforms.

There are concerns that those members of Prime Minister Shinzo Abe's administration who favor delaying tax hikes are gaining traction, which could potentially derail the sales tax measure - an important first step toward repairing public finances.

"Raising the sales tax next year may not be the best option if the economy loses momentum, although the government will seek the best way to address challenges faced by Japan," said Economics Minister Akira Amari.

Japan plans to raise the sales tax to 8 percent from 5 percent in April next year, and to 10 percent in October 2015 to meet rising health and welfare costs.

But critics of the plan, including outspoken advisors to Abe, worry about potential damage to the economy and are calling for a delay, or a more moderate increase in the tax rate.

Abe will set up a panel to study the planned sales tax hike's likely impact on the economy, the government's top spokesman said on Thursday.

The panel would be formed by Deputy Prime Minister Taro Aso, Economics Minister Amari, Bank of Japan Governor Haruhiko Kuroda and other officials who would consult experts and business leaders, Chief Cabinet Secretary Yoshihide Suga told reporters at a regular press conference.

The planned doubling of the sales tax over the next two years has come into focus as Abe looks to balance the need to stimulate growth via his "Abenomics" policies while reining in the industrial world's heaviest public debt burden.

Even if the government implements the sales tax hikes as planned, Japan cannot meet its budget-balancing target, a government draft estimate obtained by Reuters showed, indicating that more fiscal measures will be needed to rein in public debt.

Abe is expected to present a fiscal plan to his counterparts from the Group of 20 big industrial and developing countries at a September 5-6 summit in St. Petersburg, Russia.

Should the government stumble at the first step towards higher taxes, there would be even less reason to believe that the government can follow through with tough spending cuts that are essential to lowering the debt burden.

The IMF said on Monday it was essential Japan went ahead with the scheduled two-stage doubling of sales tax from next year, amid signs the government is reconsidering the plan because it could derail a nascent economic recovery.

Abe's Liberal Democratic Party, its coalition partner and the previous ruling party agreed last year to the tax-hike schedule, but the tax-hike law requires the government to gauge the economy's strength before proceeding with the plan.

Government officials say Abe will look at revised April-June GDP figures due on September 9 and other data before deciding on the tax hike.

(Editing by Shinichi Saoshiro and Eric Meijer)

http://www.globalpost.com/dispatch/news/thomson-reuters/130808/japan-decide-sales-tax-hike-schedule-late-september-economics-m