September 5, 2014 / 8:34 AM / 5 years ago

Japan PM's stance on next tax hike 'utterly neutral': econmin

TOKYO (Reuters) - Prime Minister Shinzo Abe stands “utterly neutral” on whether to decide in December to raise the sales tax again next year but he will be very cautious in his decision given the potential blow to the economy, Japan’s economy minister said on Friday.

Japan's Prime Minister Shinzo Abe speaks next to a teleprompter during a news conference after reshuffling his cabinet, at his official residence in Tokyo September 3, 2014. REUTERS/Yuya Shino

Economy Minister Akira Amari, speaking to reporters in a group interview after a cabinet reshuffle, said the government is ready to roll out a stimulus package to limit the economic impact if it decides to raise the sales tax next year.

Abe is due to decide in December whether to proceed with a second-stage rise in the sales tax to 10 percent in October 2015 in a bid to rein in Japan’s massive public debt.

April’s rise to 8 percent from 5 percent triggered the biggest contraction in three years in the second quarter, followed by a run of other weak indicators, raising doubts about whether Japan should go ahead with the hike.

“As to what the prime minister is thinking, it’s utterly neutral,” Amari said. “He said no countries have doubled the sales tax rate over a year and a half ... I expect that he will make a considerably cautious decision.”

Amari said he expects a very cautious decision, particularly if any risk emerges of the economy relapsing into deflation as that would ruin the very aim of Abe’s reflationary policies known as “Abenomics”.

Japan is no longer in deflation but the government won’t be able to declare deflation is beaten by December when a decision on the tax hike is due to be made.

If Abe’s government decided to forego the planned sales tax hike in 2015, it should take steps to offset the lost revenue and declare when the tax would be increased in order not to lose market trust in Japan’s public finances, Amari added.

“It would be very risky” if the confidence is lost, he said.

Japan’s economy shrank by an annualized 6.8 percent in the second quarter, more than erasing a first-quarter surge in the run-up to the sales tax increase. Analysts in a Reuters poll forecast a 3.8 percent bounce this quarter.

The central bank stuck with its massive monetary stimulus on Thursday and maintained its view the economy would continue its steady recovery, with the pain inflicted by the first tax hike gradually easing.

The government, however, last month flagged a risk that the April sales-tax hike could have a prolonged effect on the economy.

Amari said “there’s no gap” in the views of the government and the central bank on the economic outlook.

“There’s no gap although expressions are different,” Amari said. “We’re paying close attention to the risk of the reactionary decline (in demand) being prolonged ... I’d like to closely watch the trend of private consumption from now on.”

Reporting by Tetsushi Kajimoto; Editing by William Mallard and Chris Gallagher and Simon Cameron-Moore

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