Aso plans new extra budget to cushion sales tax hike to 10%

Kyodo

The Abe administration will compile another extra budget to mitigate the economic impact of the October 29015 tax hike, Finance Minister Taro Aso indicated on Friday.

“It is necessary to prepare to craft a supplementary budget” this fiscal year, Aso said while expressing his eagerness to hike the consumption tax rate another 2 points to help shore up Japan’s precarious fiscal health.

It is the first time Aso has touched on the possibility of an extra budget for this fiscal year, which ends next March.

After the consumption tax was raised to 8 percent on April 1, the economy shrank an annualized real 6.8 percent in the April-June quarter.

Aso’s remarks are apparently aimed at calming fears that the second round of the two-stage tax hike — which is designed to cover ballooning social security costs as the population grays — will dampen domestic demand further after doubling to 10 percent.

Market watchers “believe Japan will boost economic growth while raising the consumption tax rate,” Aso said.

“If this expectation is betrayed, we would get into terrible trouble,” he added, suggesting he is concerned a delay in the tax hike could undermine fiscal discipline and trigger a sell-off of sovereign debt.