TOKYO, Dec 3 (Reuters) - Japan is unlikely to set a time frame for a mooted consumption tax hike while the economy is mired in recession, a senior ruling coalition lawmaker said.
In contrast to Europeans mulling whether to cut sales taxes to encourage people to spend, as Britain did from Monday, Japan has been debating when and how much to raise its sales tax to help finance surging social security costs for an ageing population.
But a sharp economic downturn in the face of the global financial crisis has slammed the brakes on these talks. "We can't touch on an overhaul of the tax system unless the economic recovery gets back on track," Yoshihisa Inoue, head of junior coalition partner New Komeito's tax panel, told Reuters in an interview on Wednesday.
He added that it would be very difficult to give any clear timing for a change in the consumption tax in a policy outline that the government is expected to draw up by the end of the year.
Prime Minister Taro Aso had vowed to include tax reforms in this outline when the government unveiled on Oct. 30 a 5 trillion yen ($53.7 billion) economic package to reduce the impact of the global credit crisis.
But senior officials from his Liberal Democratic Party on Wednesday urged the government to back down on its fiscal consolidation pledges, calling for increased public works and social security spending.
The government is running a huge budget deficit. By next March, public debt is expected to hit an eye-watering 778 trillion yen, about 1-½ times gross domestic product.
In 2006, the government set a target of posting a budget surplus, excluding debt issuance and servicing costs, by the end of March 2012.
However, Japan faces the prospect of a big rise in spending on pension and health costs as a wave of postwar baby boomers retires, adding to fiscal pressure. (Reporting by Yuzo Saeki and Yuko Yoshikawa; Editing by Hugh Lawson)