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Japan's Abe says a 10% sales tax is enough, at least for 10 years

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[TOKYO] Japanese Prime Minister Shinzo Abe said he doesn't see a need to raise the nation's sales tax beyond 10 per cent over the next 10 years, a stance that could hamper the government's efforts to put the nation's finances in order.

"I don't think there's a need to raise it for the foreseeable future, for example, the next 10 years or so," Mr Abe said in Tokyo during a debate with opposition party leaders. Participants were asked to raise their hands if they thought Japan wouldn't need to increase the sales tax rate beyond 10 per cent.

The premier's comments come ahead of an upper house election later this month with a proposed sales tax bump to 10 per cent from 8 per cent in October a focal point of the poll. A higher sales tax rate is seen as vital to improve the nation's ballooning debt. Abe said he wanted to raise the tax this time while consumption was solid.

Mr Abe's remarks could raise doubts about Japan's commitment to balancing its budget over the coming years. Japan has the developed world's largest debt load and has repeatedly pushed back its targets for balancing its books. Earlier this year the government said it planned to generate more income than it spent before debt repayments in the year starting April 2025.

Policymakers have unveiled a raft of measures aimed at alleviating the impact of this year's planned tax hike after previous increases caused the economy to contract. Since the previous hike in 2014, Mr Abe has put off the sales tax increase twice.

"The comments are negative in terms of the long-term fiscal sustainability," Masaki Kuwahara, senior economist at Nomura Securities Co, said while pointing out that Mr Abe may not be the prime minister for the next decade.

"That's going to be up to someone who succeeds Abe and it has to be coordinated with various people including the finance ministry whose stance is to raise taxes. I don't think this comment will dictate the course of the next 10 years," Mr Kuwahara added.

Japan's tax revenue in the fiscal year ended March 31 rose to a record 60.4 trillion yen (S$761.19 billion), according to the finance ministry. The bulk of the increase came from individual income tax.

BLOOMBERG