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Japan tells global finance leaders it will raise sales tax as scheduled

Consumption tax rate will go up from 8 to 10 per cent this October; economy "continues to recover moderately", says finance minister

Washington

JAPANESE Finance Minister Taro Aso on Saturday pledged to global finance leaders that Tokyo will forge ahead with a scheduled sales tax hike in October, even as weakening global growth darkened the outlook for the export-reliant economy.

There is simmering speculation that Prime Minister Shinzo Abe may put off the twice-postponed increase in the sales tax, as he faces an Upper House election later this year amid increasing signs of weakness in the economy.

The premier has repeatedly said the hike will proceed this time unless Japan is hit by a shock to the scale of the collapse of Lehman Brothers in 2008. Mr Aso made no such qualification in pledging to hike the rate.

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"We will increase the consumption tax rate from 8 per cent to 10 per cent this October," Mr Aso said in a statement delivered to the International Monetary Fund's steering committee. "Through this tax rate hike, we will not only achieve fiscal consolidation over the medium to long term, but also realise inclusive growth" by using some of the proceeds to provide free early-childhood education.

While the slowdown in global growth is weighing on Japan's economy, its fundamentals remain robust as a tight job market and strong corporate earnings underpin private consumption and capital expenditure, Mr Aso said.

"The Japanese economy as a whole continues to recover moderately, primarily led by domestic demand," he said.

Raising the sales tax rate is considered important for Japan to rein in its huge public debt, which is twice the size of its economy, and pay for the rising cost of financing welfare for a rapidly ageing population.

The IMF has proposed that Japan should increase fiscal spending, instead of putting off the tax hike, if risks to the economy materialise.

A recent Reuters poll showed that most economists expect Japan to go ahead with the higher levy. REUTERS