TOKYO (AP) — Prime Minister Shinzo Abe said Tuesday he still plans to raise the consumption tax next year, denying speculation the planned increase would be postponed out of concern that Japan's economy won't be able to handle it.
The tax increase is needed to maintain Japan's welfare system and to secure confidence from markets and the international community, Abe said at a news conference marking parliament's formal approval of the government's 96.7 trillion yen ($850 billion) fiscal 2016 budget.
"There is no change to the tax hike plan next year unless there are situations like the Lehman shock or a massive earthquake," Abe said.
The tax was due to rise to 10 percent from 8 percent in October 2015, but the hike was deferred until April 2017. Many in Japan think that with national elections looming this summer, Abe will be inclined to postpone the increase.
Abe has been meeting with Japanese and international economists, including Nobel laureates Paul Krugman and Joseph Stiglitz, who both suggested he should delay the hike. Abe's meetings with the economists are seen as laying the groundwork for another postponement.
Japan's economy initially expanded under an "Abenomics" policy mix of monetary easing and fiscal stimulus, but the growth has remained below forecasts due to China's slowdown and lackluster spending by households and businesses. The economy is forecast to shrink in the current quarter following a contraction at an annual rate of 0.3 percent in October-December.
To address concerns about the economy, Abe said an additional package will be underway later this year.
The 2016 budget accommodates a 1.5 percent increase in defense expenses as Japan seeks to enhance its international military role under a set of new security law that took effect Tuesday. The new budget also focuses on support for child and elderly care, education and infertility treatment, measures aimed at combating Japan's declining population and workforce.
Theoretically the unpopular security law now allows Japan's military to defend U.S. and other allies under foreign attacks for the first time since World War II, in a situation called "collective defense."
But Abe said some operations, such as sending troops to rescue civilians in overseas peacekeeping operations or to defend American warships, are on hold until after the summer. He said time was needed to prepare for the high-risk assignments, but critics say the delay is merely to avoid public criticism ahead of the elections.
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