JAPAN’S government pledged to consider doubling the country’s five per cent sales tax within three years yesterday in a bid to soothe concerns over its billowing national debt.
Trying to address the fears of credit rating agencies, Prime Minister Naoto Kan said reform of Japan’s parlous fiscal affairs would be his top priority.
In a televised debate with other party leaders, Kan said the Greek sovereign crisis was a warning to heavily indebted countries. “If we could sustain the social welfare system forever by issuing deficit financing bonds, there would be no need to bring up the issue of the sales tax,” he said. “But if left alone, our social welfare system will collapse.”
An ageing population, weak economic growth and deflationary pressure are increasingly squeezing the Far Eastern nation’s public finances. Japan’s fiscal deficit will swell to 40.6 trillion yen (£30bn) this year – 8.6 per cent of GDP – while its debt pile is forecast to go up to 973 trillion yen by next March. Interest charges are expected to eat up a fifth of Japan’s 92.3 trillion yen budget.
Julian Jessop at Capital Economics said Kan’s plans were “a triumph of spin over substance”, and “the government has ducked any hard decisions.” Analysts say the sales tax would have to rise to 20 per cent to have meaningful impact.