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Japan must keep fiscal discipline if sales tax revenue used for other purposes: Aso

[TOKYO] Japan's government must maintain fiscal discipline if it decides to use the revenue from an upcoming sales tax hike for other purposes, Finance Minister Taro Aso said on Tuesday as talk swirled about a snap election and its impact on policy.

Mr Aso, speaking to reporters, was responding to a question about media reports that Prime Minister Shinzo Abe wanted to use the sales tax increase planned for late 2019 to fund spending on education and child care programmes.

"We have to maintain fiscal discipline, regardless," Mr Aso told reporters.

Mr Abe is considering calling a snap election for as early as next month to take advantage of his improved approval ratings and disarray in the main opposition party, government and ruling party sources have told Reuters.

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Mr Abe wants to proceed with a plan to raise the nationwide sales tax to 10 per cent from 8 per cent and use some of the extra revenue on education instead of paying down debt, media have reported.

Mr Abe wants to make this a focal point of the election, media said.

But using less tax revenue to pay down debt would make it more difficult to achieve the government's target of returning to a primary budget surplus in fiscal 2020, which could in turn raise concerns that fiscal discipline is slipping.

Mr Abe has told reporters he will make a decision on the snap election after he returns from the United States on Sept 22.

Calling a snap election now has raised eyebrows among economists and political analysts. Mr Abe has only recently reshuffled his cabinet to stabilise his government after two cronyism scandals.

His approval ratings have improved since the cabinet reshuffle, but they are still not as high as they were earlier in his administration.

Mr Abe's ruling coalition may lose some seats, but holding the election now could prevent opposition parties from regrouping and gaining strength, some analysts say.

Capital Economics said in a research note that if elections were held next month, the sales tax hike would likely take place in the middle of the Lower House's next four-year term, making a delay less likely. It had previously expected a postponement, reckoning Mr Abe would not risk upsetting voters heading into an election.