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Japan's PM candidate Kishida cautious about cutting sales tax

Japan's ruling Liberal Democratic Party (LDP) policy chief Fumio Kishida smiles as he arrives at the LDP headquarters in Tokyo, Japan, October 22, 2017. REUTERS/Kim Kyung-Hoon/Files

TOKYO (Reuters) - Fumio Kishida, a senior Japanese ruling party official seen as among candidates to become next prime minister, on Monday voiced caution over the idea of cutting the sales tax rate to help the economy weather the hit from the coronavirus pandemic.

“The sales tax is a source of revenue to pay for Japan’s social welfare burden...,” Kishida told a television programme, when asked if he opposed cutting it from the current 10% rate.

“Cutting the tax rate would burden small and midsize companies with additional costs” such as adjusting their cashier systems to adapt to a new tax rate, he said.

The government’s decision to raise the sales tax to 10% from 8% in October last year pushed Japan’s economy into recession, even before COVID-19 hammered consumption and exports this year.

Kishida said Japan must continue to take fiscal and monetary measures to support the economy, as demand won’t bounce back strongly due to the expected prolonged battle with COVID-19.

A group of ruling party lawmakers have recently called on the government to consider cutting the sales tax to cushion the pandemic’s blow on households - an idea senior government officials have ruled out so far.

Japan has raised the sales tax twice under Prime Minister Shinzo Abe’s administration as part of efforts to rein in the country’s huge debt which, at twice the size of its economy, is the biggest among major advanced economies.

Abe’s abrupt announcement on Friday that he was stepping down due to health reasons triggers an election in his Liberal Democratic Party (LDP) to replace him as party president and then a vote in parliament to elect a new prime minister.

A former foreign minister, Kishida has been widely seen as Abe’s preferred successor but ranks low in voter surveys. He has told supporters he is in the race.

Reporting by Nobuhiro Kubo, writing by Leika Kihara; Editing by Michael Perry

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