Japan mulls $50 billion stimulus to offset sales-tax hike: sources

Thu Sep 12, 2013 3:45am EDT
 
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By Yoshifumi Takemoto and Yuko Yoshikawa

TOKYO (Reuters) - Japan is considering $50 billion in economic stimulus to cushion the blow of a national sales-tax increase that is meant to rein in the government's massive debt, people involved in the decisions said on Thursday.

Prime Minister Shinzo Abe is set to raise the tax to 8 percent from 5 percent in April, rejecting calls by some advisers to delay or water down the fiscal tightening in order to keep the economic recovery on track.

The tax hike is the biggest effort in years by the world's third-largest economy to contain a public debt that, at more than twice the nation's annual economic output, is the biggest in the world.

But Abe has said he must balance the long-term need to balance the budget against his top priority of breaking Japan free from 15 years of deflation and tepid growth.

To offset the drag from the tax increase, Abe this week instructed his government to craft a stimulus package by the end of the month.

One option is a spending package worth 5 trillion yen ($50.01 billion), one of the sources said.

The government estimates that each 1 percentage point rise in the tax will generate roughly 2.7 trillion yen in revenues.

Chief Cabinet Secretary Yoshihide Suga said Abe has not yet decided on the tax increase, a move expected on October 1 after a key survey of business sentiment from the Bank of Japan.   Continued...

 
Japan's Prime Minister Shinzo Abe reviews the honour guard before a meeting with Japan Self-Defense Force's senior members at the Defense Ministry in Tokyo September 12, 2013. REUTERS/Toru Hanai