Abe orders stimulus to avert tax hike hit

Kyodo

Prime Minister Shinzo Abe has instructed his ministers to draw up a stimulus package in case the planned consumption tax hike in April harms the economy, Finance Minister Taro Aso said Tuesday.

Earlier in the day, Abe discussed the matter with Aso, economic and fiscal policy minister Akira Amari and other Cabinet members.

The prime minister is expected to announce in early October whether the administration will raise the consumption tax as planned, amid concerns that it could undermine the nascent economic recovery and derail efforts to beat nearly two decades of deflation.

“The prime minister called on us to map out by the end of this month a package to ensure economic growth ahead,” Aso told a news conference after meeting with Abe.

“If the government raises the consumption tax rate, we have to prevent consumer spending and the economy from languishing. (Abe) asked us to come up with several ideas,” Aso added.

He said the government is likely to start compiling a supplementary budget for this fiscal year, which runs until March 31, early next year.

The package would see the government create an extra budget worth more than ¥2 trillion that could finance cash payment to lower-income households and homebuyers, sources said. It would also involve tax measures to encourage investment and salary hikes by companies.

Under legislation enacted last year, the sales tax will be raised to 8 percent from the current 5 percent in April and to 10 percent in October 2015 to pay for swelling welfare costs.

Many economists fear the tax hike will dampen business investment and personal consumption.

Abe has said he will make a final decision on the tax increase after studying the latest “tankan” business sentiment survey by the Bank of Japan due out Oct. 1.

The prime minister earlier said he wanted to look at revised gross domestic product figures for the April-June period.

The GDP data, released Monday, showed the economy grew an upwardly revised 3.8 percent in annualized real terms, adding to expectations within the government and ruling parties that the tax hike will be implemented as planned.

A majority of 60 experts in recent hearings supported the hike, although some conditioned their approval on plans to streamline welfare services.

Opponents, however, suggested a smaller tax increase to ease the possible negative impact.

Also Tuesday, some officials said the government will upgrade its basic assessment of the economy for this month, the first such move in two months and another development that could affect Abe’s decision on the consumption tax.

In August, the Cabinet Office noted the economy is “picking up steadily and shows some movements on the way to recovery” while “recent price developments indicate that the deflation is ending.”

The report due out Friday will reflect the recent upturns in employment and business investment in accordance with robust industrial output, the officials said.

In a similar move, the BOJ raised its assessment last week, saying the economy “is recovering moderately.” The central bank used the term “recovering” in its monthly report for the first time in five years.