TOKYO • Japanese Prime Minister Shinzo Abe yesterday said he will convene an advisory panel to consider an extra budget for the coming fiscal year, days after the Group of 20 nations urged more fiscal spending to support the ailing global economy.
Mr Abe said the panel would help him prepare for the hosting of a Group of Seven (G-7) summit in May where the fragile state of global growth is sure to top the agenda.
"We need to do more to ensure stable growth for the world economy," he said. "I want to hear the frank views of experts and well- known economists from inside and outside Japan. We need to debate how G-7 countries can cooperate."
Financial market turmoil and economic contraction at the end of last year have increased pessimism about Japan's domestic demand, but rising tax revenue and falling bond yields suggest it now has more leeway to spend.
Finance Minister Taro Aso has said he would not rule out compiling a stimulus package for fiscal 2016/17, which starts in April.
MONEY TO SPEND
We are already factoring in an extra budget for money to be spent in fiscal 2017. Nominal growth is good, and tax revenue is nominal, so the government should have enough money to spend.
MASAMICHI ADACHI, a senior economist at JP Morgan Securities
"If there are changes in the economy, then it's natural to respond with an extra budget," said an official involved in fiscal policy, who said the government was seriously leaning towards more spending.
"Cash handouts for pensioners have only just started, but this could be an option," the official said, referring to a policy that will start next month.
Timing was not yet clear on an extra package, but ruling party heavyweight Toshihiro Nikai has said he suspected it was being prepared ahead of polls expected in July.
Mr Abe's adviser Masahiko Shibayama has said the next package could include spending on childcare and elderly care to reduce the burden on the working population. Economists are building extra spending into their forecasts.
"We are already factoring in an extra budget for money to be spent in fiscal 2017," said senior economist Masamichi Adachi at JP Morgan Securities. "Nominal growth is good, and tax revenue is nominal, so the government should have enough money to spend."
A spending boost could help offset the blow from a rise in the sales tax to 10 per cent from 8 per cent in April 2017. The government tried the same thing when it raised the tax to 8 per cent from 5 per cent in 2014, but its 5.5 trillion yen (S$68 billion) stimulus package was not enough to stop a recession. This time the size of the tax increase is smaller, and the government has already agreed to exempt food and other everyday goods, but politicians are worried.
Mr Yoshihide Suga, the government's top spokesman, last Friday said taxes should not be raised if it caused revenue to fall, suggesting a delay is possible.
A 2 percentage-point sales tax hike will cost consumers about 5 trillion yen, so the government needs to spend 5 trillion to 10 trillion yen to keep consumption on track, economists say.
Tax revenue is closely correlated with nominal gross domestic product growth, and on that measure Japan is set for a windfall, economists say. Last calendar year, nominal GDP expanded at the fastest pace since 1994, when comparable data first became available.
The Finance Ministry expects fiscal 2015/16 tax revenue to reach a 24-year high of around 56 trillion yen, more than its original estimate of 54.5 trillion yen.