TOKYO (Reuters) - Japan’s government is likely to compile an extra budget for the current fiscal year ending next March to cushion a blow to the economy from a planned sales tax hike next year, government sources said on Friday.
While an extra budget is “utterly unavoidable”, as one government official told Reuters, additional spending may complicate Tokyo’s efforts to fix its stretched finances.
Therefore the government will seek to limit additional borrowing by using budget reserves including greater-than-expected tax revenues for last fiscal year estimated at around 1 trillion yen (6.5 billion pounds).
Several other government officials, all speaking on the condition of anonymity, said that there is a growing agreement within the ruling coalition that additional budget spending will be necessary.
Tokyo plans to double the sales tax from current 5 percent in two stages - to 8 percent in April 2014 and to 10 percent in October 2015 - with the caveat that the plan will go through only if the economy is deemed strong enough to cope with the impact.
The government will make a final decision in the autumn taking into account April-June economic data due by then.
The government has pledged to halve the primary deficit - the budget excluding new bond sales and debt servicing - by March 2016 and bring it to surplus by March 2021 to contain its ballooning public debt.
It will detail how it wants to accomplish that in a medium-term fiscal plan. The plan, due in August, will outline plans for the coming three years and is expected to include a pledge to cap general spending excluding debt servicing at the current year’s level of about 70 trillion yen in the next two years.
Reporting by Yuko Yoshikawa; Writing by Tetsushi Kajimoto; Editing by Tomasz Janowski & Kim Coghill