Tax increase seen as not enough to mend Japan's finances
News On Japan via Wall Street Journal -- Jun 27
Though Japan took an important step in addressing its dire fiscal situation Tuesday by passing a bill to double the nation's sales tax through the lower house, economists, and even the government, say it won't be enough to solve the problem.
The bill, which will now be debated by the upper house, seeks to raise the sales tax to 10% from 5% by 2015 in an attempt to cut into the nation's ballooning debt load, the highest in the developed world. The government estimates a five percentage point increase will bring in about ¥13.5 trillion ($169.30 billion) in extra revenue annually.
"Economic conditions will actually get worse with this bill," said Hiromichi Shirakawa, chief Japan economist at Credit Suisse Securities, adding that if the government does not stimulate growth and cut spending-especially medical-Japan's budget deficit will continue to rise.
The ruling Democratic Party of Japan was forced to compromise with the two main opposition parties and take some-social security reform measures, that could have cut spending, off the table.
Medical and social-security spending have increased as Japan's population rapidly ages. The percentage of Japan's population 65 years and older reached a record 23.3% last year, according to the most recent Cabinet Office figures, and is expected to rise to nearly 40% percent by 2060.
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