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Sales tax hike to 10% may be delayed if economy stalls: minister

Kyodo

The government will postpone the planned sales tax hike to 10 percent from 8 percent in October 2015 if the economy faces a downturn, economic and fiscal policy minister Akira Amari suggested Thursday.

“If the economy stalls, it would be difficult to decide” to carry out the second round of the two-stage consumption tax increase following the 3 percentage-point hike from the current 5 percent in April, Amari said during a Diet session.

“The economic situation would be a major criterion in making the decision,” Amari added, indicating the government will make a final judgment on the tax hike by the end of this year after assessing various economic indicators through December, including the July-September gross domestic product data.

Amari also said that if the tax increase is delayed, the government would review its current fiscal rehabilitation plan “in a drastic manner,” as the plan is based on the sales tax being raised to 10 percent.

The sales tax hike is aimed at covering swelling social security costs for Japan’s graying population, as the nation’s fiscal health is the worst among major developed economies, with public debt equivalent to more than 200 percent of GDP.

Prime Minister Shinzo Abe said during the same Diet session, “We will make a judgment (on the next tax increase) while assessing whether the economy will return to a growth path.

“We have yet to decide whether to raise” the consumption tax to 10 percent, Abe added.

Earlier this month, the Diet enacted a ¥5.5 trillion extra budget for fiscal 2013 through March to fund a stimulus package designed to prevent the sales tax hike to 8 percent from significantly dragging down the economy.