Japan finmin quells speculation sales tax hike may be delayed

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TOKYO (April 19): Japanese Finance Minister Taro Aso said on Friday there was no change in the government's stance that it would go ahead with a planned sales tax hike in October, barring a big economic shock on the scale of the collapse of Lehman Brothers.

Aso made the comment a day after a close aide of Prime Minister Shinzo Abe told an Internet TV programme that the planned tax increase may be postponed depending on the results of the central bank's next tankan business survey due in July.

The remarks by Koichi Hagiuda, acting secretary-general of Abe's Liberal Democratic Party (LDP), fuelled speculation that the prime minister might postpone the twice-delayed tax increase despite his repeated vows that it would go ahead.

It also fanned speculation about a possible snap lower house election to coincide with an upper house election this summer, although Hagiuda said it would be difficult given a tight schedule as Japan will host a summit of Group of 20 major economies in June.

"The sales tax hike to 10% is needed the most to secure stable financial resources to pay for social security for all generations, in order to cope with the ageing population," Aso told reporters after a cabinet meeting. "We will proceed unless a big incident like the Lehman shock occurs."

The previous tax increase to 8% from 5% in April 2014 hit consumers hard and triggered a sharp slump in the world's third-largest economy.

Since then Abe has delayed the planned hike twice as he prioritised economic growth over fiscal reforms needed to fix the industrial world's heaviest public debt burden.

The government has already planned to spend 2 trillion yen (US$17.9 billion) on measures to offset the blow to consumers from a 10% sales tax.

Many Japanese firms want the authorities to go ahead with the planned tax hike, but feel that additional government spending is needed to cushion the blow on the economy, a Reuters monthly poll showed.

The Organisation for Economic Cooperation and Development (OECD) urged Japan on Monday to raise the sales tax to as high as 26%, underscoring the need for the country to boost finances as its population rapidly ages.

(US$1 = 111.9400 yen)