Japan govt weighing income tax hike on wealthy to meet fiscal goal: sources

TOKYO (Reuters) - Japan's government is considering raising income taxes for the wealthy and increasing the inheritance tax if it looks unlikely to reach its goal of returning to a primary budget surplus in 2020, government sources said.

Prime Minister Shinzo Abe's government plans to raise the nationwide sales tax to 10 per cent from 8 per cent in April 2017 to help pay for rising welfare and healthcare costs.

"Abe is determined to not raise the sales tax any further," said one source who declined to be identified. "But we still have to make sure spending matches revenue, so we would have to consider measures to either cut spending or increase revenue."

The government will conduct a mid-term assessment of the country's finances heading into the start of fiscal 2018, the source said.

If this assessment shows the government is not on track to return to a primary budget surplus in fiscal 2020 then further steps would be needed, the source said.

A primary budget is an important indicator of a country's underlying fiscal health because it excludes income from bond sales and debt servicing costs. "This has not made its way into any government documents yet, but raising other taxes could become an option," another source said.

The government will compile a stimulus package to offset the short-term impact on the economy when the sales tax rises to 10 per cent, several sources said.

The government is particularly worried because a sales tax increase last year to 8 per cent from 5 per cent hurt the economy more than expected and helped trigger a mild recession.

However, fiscal discipline is also important because Japan's outstanding debts are more than twice the size of its US$5 trillion economy, which is the world's worst debt burden.

Abe's government wants to see how the economy performs after the sales tax rises to 10 percent, but it also wants to make sure it meets its fiscal discipline target, the first source said.