Finance Minister Taro Aso said in his new year policy speech Friday that he will “certainly” go through with the second stage of the consumption tax hike to 10 percent in April 2017 to secure international trust in Japan’s efforts to return to fiscal health.
The finance chief, who doubles as deputy prime minister, also vowed to further enhance economic policy to bring about a strong economy led by private-sector demand.
“To secure trust in the country from the market and the international community, we will ensure economic and fiscal management with all possible means and certainly implement a consumption tax hike to 10 percent in April next year,” Aso said in a speech to the Diet. Prime Minister Shinzo Abe has the final say on the tax hike.
He also pledged to achieve the country’s goal of turning the primary balance into a surplus by fiscal 2020. Japan’s debt issuance remains high at around ¥162.2 trillion ($1.38 trillion), driving up a public debt that is more than 200 percent of nominal gross domestic product and giving it the worst fiscal health of the major industrialized economies.
A deficit in the primary balance means the government cannot finance its annual budget, excluding debt-servicing costs, without issuing new bonds.
“In order to make the social security system sustainable, it is essential to maintain fiscal sustainability,” Aso said, vowing to carry out the economic and fiscal reform the government mapped out last year.
To ease the impact of the sales tax increase on low-income individuals, the government will exclude food items from the second stage of the consumption tax hike legislated in 2012, Aso said. The second stage, delayed to April 2017, will finally double the sales tax to 10 percent from 5 percent. The first stage raised it to 8% in April 2014.
The government submitted to the Diet a record-high ¥96.72 trillion budget for fiscal 2016 starting in April, focusing on welfare measures to tackle a rapidly aging society while trying to restore fiscal health.
Aso explained that the government curbed an increase in social security-related spending as stated in its fiscal reform plan adopted last year.
Meanwhile, Economic and Fiscal Policy Minister Akira Amari called for stimulating private demand to lift Japan’s nominal GDP by 20 percent from the current level to ¥600 trillion by around 2020 as pledged by Prime Minister Shinzo Abe.
“Now is the time to put an end to the deep-seated deflationary mindset and use record-high corporate profits to realize an expansion in consumption through aggressive investment and wage increases,” Amari said in a separate speech.
To encourage companies to boost business investment, the government will reduce the effective corporate tax rate to below 30 percent in fiscal 2016, Amari said.
The government will also draw up a strategy by fall this year to make the agricultural sector more competitive by promoting the export of farm products and other measures, he said.