January 24, 2012 / 2:01 AM / 8 years ago

UPDATE 1-Japan to miss fiscal target on sales tax delay

* Support for sales tax hike falling

* Some economists say fiscal discipline plans too timid

* Japan has struggled to reduce large outstanding debt

By Stanley White

TOKYO, Jan 24 (Reuters) - Japan will halve the ratio of its primary budget deficit to gross domestic product one year later than planned, the government said on Tuesday.

The delay comes after it pushed back the timing of a sales tax rise needed to repair public finances and offset rising welfare spending.

The ratio of the primary budget deficit to GDP will fall to 3.0 percent in fiscal 2016/17, slightly less than half of what it was in fiscal 2010/11, ended last March 31, the Cabinet Office said. A primary budget balance excludes debt servicing costs and income from bond sales.

The delay was expected by some as many economists have said the government’s fiscal discipline plan is too timid. Still, it underlines the uphill battle the government faces in pushing through unpopular sales tax rises needed to help offset rising welfare costs and spiralling public debt.

“It’s difficult to improve public finances in one fell swoop,” Japanese Economics Minister Motohisa Furukawa said.

“This is more like a triple jump in track and field. Our plan to raise the sales tax and change the welfare system is just the first jump. We will have to work harder to improve public finances further.”

Originally, the government wanted to halve the primary deficit-GDP ratio by fiscal 2015/16 as a first step in a long process toward reducing the debt burden, which is the worst among industrial nations at almost twice the size of GDP.

The government expects the ratio to reach 3.3 percent in fiscal 2015/16, just short of its target of 3.2 percent.

In fiscal 2020/21 the primary deficit will also total 3.0 percent of GDP, the government forecast. That is well short of its target to return to a primary budget surplus, and amounts to an admission that it will have to work harder at fiscal discipline.

Late last year the ruling Democratic Party agreed a timetable on rises in the sales tax, with the first rise not coming until April 2014, six months later than originally planned.

The timetable, revised to appease lawmakers who are reluctant to take the unpopular step of raising taxes, will push up the 5 percent sales tax to 8 percent in April 2014 and then to 10 percent in October 2015.

Passage of the tax hikes is uncertain as Prime Minister Yoshihiko Noda’s approval ratings have slumped. Noda also needs opposition parties to vote for the bill in a divided parliament, but so far other parties have signalled they will not easily cooperate.

“Our draft (tax reform) plan and the bill that we are going to submit to parliament stipulate that we will hold additional concrete discussions to achieve a primary balance in fiscal 2020,” said Finance Minister Jun Azumi.

“Enactment of the bill would be a major step forward.”

The International Monetary Fund and credit ratings agencies have often argued that Japan’s sales tax, one of the lowest among major economies, needs to rise to 15 percent or even 20 percent to help to truly improve public finances.

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