Japan to Skip Tax Hike, Use Reserves for Pensions, Yomiuri Says

By Aya Takada

Nov. 9 (Bloomberg) -- Japan will increase spending on the nation's pension program next fiscal year without raising sales taxes, using reserves from special accounts instead, the Daily Yomiuri said today, citing government sources it didn't name.

The government is scheduled to raise its contribution to the pension fund to half from a third beginning in April, and will do so using special account reserves related to its fiscal investment and loan program, the newspaper said.

Use of the reserves indicates the economic slowdown is precluding government officials from raising the consumption tax rate from its current 5 percent, Yomiuri said. A higher sales tax had been seen as the likely funding source for increased pension expenses, it said.

Under the fiscal investment and loan program, also known as ``zaito,'' the government borrows from institutions such as public pension funds and postal savings, to invest in projects operated by state-owned companies. Special accounts in the program accrue income when interest payments from the projects exceed the state's borrowing cost, according to the report.

To contact the reporter on this story: Aya Takada in Tokyo atakada2@bloomberg.net