Sales tax hike inevitable for Japan's fiscal health: gov't estimate

TOKYO, June 9 Kyodo - The government must raise Japan's consumption tax rate to 12 percent from the current 5 percent if it is to achieve a newly proposed fiscal discipline target, an official estimate showed Tuesday.

The estimate will be officially announced later this month along with the
government's annual fiscal policy guidelines. But Prime Minister Taro Aso is
unlikely to engineer policies based on the estimate immediately as ruling
lawmakers apparently want to deal with such a politically sensitive issue
carefully before the general election to be held by this fall.
The government proposed the new target, which is less ambitious than earlier
ones, at a key economic policy panel as a result of swelling public spending to
cover social security costs and finance the country's stimulus packages to
fight the economic recession.
The new target aims to achieve a surplus in the primary balance at both
national and local levels by the end of fiscal 2019, said a released draft of
the 2009 fiscal policy guidelines.
A primary balance surplus means expenditures, excluding debt-servicing costs,
are covered by revenues without issuing new debt. The government earlier said
it would try to reach the goal during fiscal 2011, which ends in March 2012.
The Cabinet Office separately released a set of estimates that studied possible
scenarios for Japan's economic development under various circumstances.
One of the scenarios said Japan could achieve a primary balance surplus as
early as fiscal 2018, but that it would come only after the government raises
the rate of consumption tax by 7 percentage points to 12 percent.
If the rate is raised only by 5 points, another estimate showed, the government
must wait until fiscal 2021 in order to see the goal achieved.
A Cabinet Office official said, however, that these are no more than estimates,
suggesting it is lawmakers who must decide what road to take.
Finance Minister Kaoru Yosano appeared attempting to ease the impact of the
estimates, saying at a press conference they were merely ''mechanically
calculated'' numbers or ''approximate tendency.''
The estimates would ''never determine how much we are going to raise the rate
of the tax,'' Yosano also said.
The focus is now shifting to how Aso and the ruling coalition led by his
Liberal Democratic Party will explain those estimates and a possible tax hike
to voters ahead of a general election, which will be held by the end of
September.
The government earlier said it needs to reform the country's taxation system,
and that such reforms must include studying the possibility of raising the
consumption tax in fiscal 2011 should the economy recover.
The draft policy guidelines also refer to a separate fiscal discipline goal of
halving the ratio of the primary balance deficit to the nation's gross domestic
product by the end of fiscal 2013.
The combined long-term debt of central and local governments is expected to be
more than 160 percent of the nation's gross domestic product as of the end of
next March.
For a longer-term goal, it says the government should work to prevent expansion
in the ratio of state and local government debts to GDP by the mid-2010s and
stably reduce it from around 2020.
The government proposed these new goals at a session of the Council on Economic
and Fiscal Policy, which is chaired by Aso.
The council will continue discussions on the fiscal policy guidelines before
formally approving it later this month.
Japan's fiscal health has deteriorated as the government has strayed from the
path of fiscal consolidation, spending more to finance the country's social
security system given its aging population and drawing large sums from the
state coffers to fight the economic recession following the onset of global
financial turmoil last fall.
Aso has said the situation is an emergency, declaring that the government will
spend as necessary to put the country's economy back on a growth track.
==Kyodo