Prime Minister Shinzo Abe decided on Friday that if he considers it difficult to raise the consumption tax rate to 10 per cent from 8 per cent in Oct 2015, he will dissolve the House of Representatives this week and call a snap general election on Dec 14, with official campaigning set to kick off on Dec 2, according to sources.
To deal with the situation, the government and ruling parties will accelerate work to compile a fiscal 2015 budget, with the aim of having it passed by the end of the current fiscal year even if Abe dissolves the lower house this week.
Diet approval of the fiscal 2015 budget was initially expected to be delayed until next fiscal year, due to delays in compilation of both the fiscal 2015 budget and tax system reform guidelines.
Meanwhile, Abe is expected to instruct the government and ruling parties on Monday to formulate economic measures that can be carried out to a certain degree through the campaign even after the lower house is dissolved, according to the sources.
If the Liberal Democratic Party wins the election, the budget will be completed and the government will be poised to submit the budget at the beginning of the ordinary Diet session next year.
"It [the fiscal 2015 budget] will be passed if Diet deliberations advance without being disrupted," a government source said on Friday.
Abe will determine whether to raise the consumption tax rate after examining preliminary GDP figures for the July-September period, which will be announced on Monday.
If he decides to postpone the increase of the consumption tax rate to 10 per cent, which is scheduled for October next year, he will announce as early as Tuesday that he will dissolve the lower house, the sources said.
The lower house is most likely to be dissolved either on Thursday or Friday in order to enable the passing of two bills related to local revitalization currently under deliberation in the House of Councillors, the sources said.
If the tax hike is postponed, Abe plans to raise the consumption tax to 10 per cent in April 2017 - 1.5 years later than planned.
Sources close to the prime minister say decreased tax revenue, caused by postponing the consumption tax hike, will be balanced out for the time being by the increased revenue generated by Abenomics. However, the sources say that the tax increase will certainly be essential 1.5 years later.
Abe is also considering whether to introduce lower tax rates for daily necessities at the same time as the introduction of the consumption tax increase.
A snap general election scheduled for Dec 21, with official campaigning set to kick off on Dec 9, was also among initial options for consideration. However, compilation of the budget and other tasks were thought to be prone to delays, with calling an extraordinary Diet session and forming a new Cabinet each taking time. Given the circumstances, Abe set Dec 14 as the tentative poll day, with election preparations taking on a greater sense of urgency.