Apr 16, 2019 (Japan Today) - Japan should more than double the consumption tax rate to as high as 26 percent to ensure its fiscal sustainability, the Organization for Economic Cooperation and Development said Monday.
In its biennial report, the OECD said Japan faces the intertwined challenges of a rapidly graying population and large government debt, which require a "comprehensive fiscal consolidation plan, including specific spending cuts and tax increases."
Japan's fiscal health has remained the worst among advanced economies, with public debt equivalent to 236 percent of gross domestic product last year, according to the Finance Ministry.
Prime Minister Shinzo Abe has promised to achieve fiscal consolidation by bringing the primary balance -- tax revenue minus expenses other than debt-servicing costs -- into the black by the target year of fiscal 2025.
Due to weaker-than-expected growth, the OECD Economic Surveys of Japan estimated that a sustained primary surplus of 5 percent to 8 percent of gross domestic product would be essential to reduce the ratio to 150 percent by 2060.
The Japanese government plans to raise the consumption tax rate from 8 percent to 10 percent on Oct 1 to boost revenue.
But the Paris-based club of 36 mostly wealthy nations noted the current 8 percent is one of the lowest among its members and Japan should rely primarily on the tax as it is a "relatively stable revenue source, is less harmful for growth and improves intergenerational equity."
"Achieving a sufficient primary surplus through the consumption tax alone would require raising the rate to between 20 percent and 26 percent, above the 19 percent OECD average," the report said.
