Japan must proceed with unpopular sales tax hike, senior LDP official says

TOKYO (Reuters) - Japan must proceed with a sales tax hike scheduled for 2019 to put its fiscal house in order and cover the rising social welfare costs of a rapidly aging society, the ruling party’s policy chief said on Tuesday.

Fumio Kishida, Japan's outgoing Foreign Minister and ruling Liberal Democratic Party's new policy chief, arrives at prime minister Shinzo Abe's official residence in Tokyo, Japan, August 3, 2017. REUTERS/Toru Hanai

The remark by Fumio Kishida, who oversees the Liberal Democratic Party’s policy-setting, comes amid lingering calls from politicians to postpone for a third time the unpopular sales tax increase to 10 percent from 8 percent.

“It’s an imminent task” for Japan to make its social welfare system more sustainable and improve its fiscal health, Kishida told reporters.

“Japan must ensure it proceeds steadily” with the scheduled sales tax hike so it can meet the government’s goal of balancing the budget in the fiscal year ending in March 2021, he said.

Kishida, a former foreign minister who took the LDP post in a cabinet reshuffle in August, is considered as among leading candidates to eventually succeed premier Shinzo Abe.

Asked whether he would run in next year’s LDP election to select the party leader, Kishida declined to comment. As the ruling coalition holds a comfortable majority in parliament, the LDP’s chief is assured of becoming prime minister.

Japan’s government has twice delayed a plan to raise the sales tax to 10 percent from 8 percent, after an earlier hike from 5 percent hurt consumption and growth.

Abe has said he will proceed with the tax hike in October 2019, though some analysts say he may scrap the plan to prioritize growth over fiscal discipline.

Government sources have told Reuters Abe is looking to quietly ditch a pledge to balance the budget by fiscal 2020 in favor of a looser debt-to-GDP ratio target, a move that gives him a free hand to delay the tax hike.

Tax hikes and spending cuts are considered crucial to curb Japan’s huge public debt which, at twice the size of its economy, is the biggest among advanced economies.

Reporting by Takashi Umekawa; Writing by Leika Kihara; Editing by Richard Borsuk