The government plans to have steps in place to protect the economy if it decides to complete the doubling of the consumption tax to 10 percent in October 2015, reappointed economy minister Akira Amari said Friday.
“We won’t raise the tax without any countermeasures,” Amari, a long-time ally of Prime Minister Shinzo Abe, said in a group interview with the media.
Amari didn’t elaborate but suggested more fiscal spending was being prepared to prop up the economy as the government did in April, when the first stage of the tax hike increased it to 8 percent from 5 percent.
The government mainly boosted spending on public works to offset the tax hike, but this time, it might focus more on other areas, such as subsidies to lure small companies into increasing capital investment, he said.
Amari, one of the architects of the prime minister’s economic program, dubbed “Abenomics,” said that increasing public works spending might just fuel soaring personnel and material costs in the overheated construction industry.
“We shouldn’t simply spread money around,” he acknowledged.
A special law obliges the government to raise the sales tax to 10 percent from 8 percent in October 2015, but allows the move to be postponed if the economy slows too much.
“We still have both options open, to raise or to postpone the decision,” Amari said.
But it may not be so simple. If Abe postpones the second stage, the government will have to draw up a new long-term fiscal reform plan to maintain the credibility of Japanese government bonds with investors, who might shun JGBs if Japan doesn’t do something credible to address its snowballing public debt, the worst among the developed nations.
“We should avoid losing the prospect for fiscal reconstruction,” Amari said. “We should never let it happen.”
Earlier in the day, Amari said he met with a group of foreign investors who said the government should raises taxes as planned to underline Japan’s determination to reduce the debt, he said.
“If we decide to postpone (the tax hike), we should clearly show a picture of how we will improve (fiscal health). Otherwise, we will not win the confidence of the market,” he said.
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