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Japan sales tax to rise as planned: ruling party heavyweight

Senior LDP official Katsunobu Kato acknowledges need for additional stimulus

Katsunobu Kato, who chairs the General Council of Japan's ruling Liberal Democratic Party, is seen as a candidate to succeed Prime Minister Shinzo Abe.   © Reuters

CHICAGO -- Japan will raise the 8% consumption tax to 10% as scheduled in October, barring a major financial crisis, a top official in the ruling party told Nikkei, while acknowledging that the government may need to spend more to shore up the economy.

"I haven't heard anyone say that we could see something on the scale of the Lehman shock," Katsunobu Kato, head of the Liberal Democratic Party's General Council, said here Wednesday, referring to the global financial crisis a decade ago. "It's appropriate for us to proceed as planned."

Prime Minister Shinzo Abe decided to delay planned increases in 2014 and 2016. This time, he has said the government will go through with the increase, barring a disruption on par with the 2008 crisis. No such shock happened in 2016, but Tokyo still chose to push back the increase in light of looming downside risks to the global economy, including a slump in emerging markets.

Now, "there's some domestic weakness due to external factors, but domestic consumption is still solid," Kato said. "And economists expect the global economy to pick up from midyear into year-end."

Japan's fiscal 2019 budget includes roughly 2 trillion yen ($17.9 billion) in stimulus to mitigate the impact of the tax increase, including measures to promote purchases of homes and cars, a system of reward points for cashless payments, and shopping vouchers for low-income households. The aim is to smooth out the demand fluctuations that the tax increase is expected to cause, Kato said.

But he acknowledged that the economy has stalled after past hikes. "Naturally, we'll keep an eye on economic trends and implement stimulus measures as necessary," he said.

Kato argued that ensuring a smooth tax hike is important to allow the government to retain that option in the future. "Going forward, we have to discuss whether we'll do it through taxes, insurance premiums or some other way," he said, referring to additional steps to improve government finances.

Another consumption tax hike "can't be an option if it will harm the economy," he said.

Kato is not the only senior LDP official to argue for the consumption tax hike during the 10-day break around the Golden Week holidays and the new emperor's succession.

"It's been a long time since we put the consumption tax issue to the people. It's time for the government and the LDP to make a major call," Toshihiro Nikai, the party's secretary-general, said Monday during a trip to Beijing.

Kato, who is seen as one of the potential successors to Abe, toured a Toyota Motor plant in Kentucky during the visit. "I want to study broadly, including diplomacy, and deepen my knowledge," he said.

"As a politician, I'm grateful for the attention I've received," said Kato, saying:  "I want to respond to the public's trust."

The veteran lawmaker has the prime minister's trust and served as health minister in his cabinet. Kato was tapped to head the LDP General Council -- one of the party's four key decision-making posts -- in a reshuffle last October.

Other potential candidates to take the reins from Abe include former Defense Minister Shigeru Ishiba; Chief Cabinet Secretary Yoshihide Suga, Abe's right-hand man; LDP policy research chief Fumio Kishida; and Economic and Fiscal Policy Minister Toshimitsu Motegi. Some party figures -- including Kato himself -- have also hinted at the possibility of Abe serving a fourth term.

Kato downplayed his chances of joining the succession battle, saying he does not envision himself competing against other contenders, and indicated he would focus on fulfilling his current role.

"I want to spread my wings and accumulate knowledge and experience," he said.

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