TOKYO: Japan must raise its sales tax again to conquer one of the world’s heaviest public debt burdens, the International Monetary Fund said as it called for deep economic reforms.
The recommendations, outlined in the Washington-based fund’s annual country report, come several months after Tokyo ushered in its first sales levy increase in 17 years, which sparked concern it would derail a recovery in the world’s number-three economy. Boosting the tax rate to 8.0 per cent from 5.0pc was aimed at bringing down Japan’s staggering debt, but Prime Minister Shinzo Abe has wavered on whether Tokyo would approve a second rate hike to 10pc, still low compared with some Western nations.
The IMF report said the country had little choice.
“Given very high levels of public debt, implementation of the second consumption tax increase is critical to establish a track record of fiscal discipline,” it said.
Millions across Japan made a last-minute dash to stores in a national buying spree before prices rose on April 1 – followed by an immediate drop in spending that some feared would dent producers and curb their expansion plans.
The deflation-plagued economy had been on a roll after Abe swept to power in late 2012 with a three-pronged plan to wage war on years of falling prices and kickstart growth.
His blueprint called for big government spending and huge monetary easing from the Bank of Japan, moves that boosted growth and stoked a stock market rally.
But experts remain divided over the long-term success of the plan, dubbed “Abenomics”, and say Japan’s premier must shake up his nation’s protected and highly-regulated economy.
In its report, the IMF said Japan’s economy was likely to expand 1.6pc this year, “buoyed by strong business investment and last-minute consumer spending ahead of the consumption tax increase in April”.
“However, structural reforms have progressed slowly and a medium-term fiscal plan beyond 2015 is still to be articulated,” it added.
“Uncertainty is therefore high whether the recovery and exit from deflation will become self sustained under current policies.”
