'Japan must raise sales tax to repay record debt'

[Ulhas Joglekar]

9 December 1999 :
'Japan must raise sales tax to repay record debt'
TOKYO: Three years after a consumption tax hike sank the Japanese economy,
the government may have to raise the levy again to pay for its stimulus
packages, an Organization of Economic Cooperation and Development official
said on Wednesday.
"The deficit isn't going to come down by itself, so it's necessary to cut
spending and increase taxes, including the consumption tax," said Yutaka
Imai, a senior OECD economist.
While Japan's economy has started to rebound, growth won't be strong enough
to generate enough cash to repay the debt, Imai said.
The OECD forecasts that Japan's economy will grow 1.5 per cent in the fiscal
year ending March 31, as consumer spending starts to rebound and continued
growth in the United States and Europe increases demand for Japanese goods
such as cars and stereos.
Japan's debt this year will balloon to a record 38.6 trillion yen ($374.8
billion) with the expected passage this week of an 18-trillion-yen spending
plan to help the economy grow 0.5 per cent.
The government has increasingly had to borrow to pay for the additional
public works and other projects because high unemployment has sapped tax
revenues.
Japan's debt is among the highest in the world as a percentage of gross
domestic product, a measure of all goods and services produced in a country.
Yet any attempt to increase the consumption tax would probably meet stiff
resistance in Parliament. The government boosted the tax to 5 per cent from
3 per cent in April 1997, spiking consumer demand and sending Japan into its
worst recession in decades.
Larger taxes on consumption will become increasingly necessary as the aging
of Japan's population cuts into the number of wage earners, reducing income
tax receipts, said Andrew Shipley, senior economist at Schroders (Japan)
Ltd. Any tax increase isn't likely soon, though.
For reprint rights: Times Syndication Service
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