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Economy

Japan's consumption tax should be raised to 15%: IMF official

Social security cuts also needed to curb unsustainable debt

Japan must not offer softer tax rates for food and other goods and must cut social security spending, an IMF official said.
Japan should cut social security spending and avoid softer tax rates for food as the population ages, says an International Monetary Fund official studying the country's fiscal health.   © Reuters

TOKYO -- Japan needs to lift the consumption tax rate to 15% and reform its health care and pension systems to restore fiscal health as the nation's aging population spurs more social security spending, an International Monetary Fund official told Nikkei.

The country's public debt load -- roughly double the gross domestic product -- is unsustainable, said Paul Cashin, who leads the delegation for the IMF's annual inspection of Japan's economy.

In the written interview, he suggested incremental hikes of between 0.5 and 1 point to the consumption tax rate. But while Cashin called the tax crucial to repairing public finances, he cautioned that raising the rate alone would not cover expected increases in social security spending.

Japan raised the consumption tax to 8% in 2014. Prime Minister Shinzo Abe's government plans to lift the rate again to 10% next year, having postponed the increase from the initial target of 2017 over concerns about the economic impact.

The IMF official also disapproved of plans to offer softer rates on foodstuffs and other key goods, urging a uniform tax.

Curbing social welfare spending will be critical as well, Cashin said. The government has floated ideas including raising the age for collecting pensions and having patients pay more of their medical costs based on the pace of economic growth and population decline. But discussions have yet to begin in earnest.

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