Japan Must Raise Taxes as Debt to Top 220% of GDP, OECD Says

Japan must keep its pledge to start raising the sales tax in 2014 to control a public debt forecast to exceed 220 percent of gross domestic product next year, the Organization for Economic Cooperation and Development said.

Gross public debt will be 223 percent of GDP next year, up from the projected 214 percent in 2012, “pushing Japan’s public finances further into uncharted territory,” the Paris-based OECD said in a report released today.

Raising the 5 percent sales tax levy, which Prime Minister Yoshihiko Noda wants to double by 2015, is a “top priority” for the country and balancing the budget and reducing the public debt burden is “essential,” the OECD said in the report. Delays in restoring fiscal health in the world’s third-largest economy could risk a run-up in government borrowing costs, according to the report.

The OECD also said the Bank of Japan (8301) should continue monetary easing measures until inflation is “firmly” positive at the central bank’s target rate of around 1 percent. Core consumer prices, which exclude fresh food and are the bank’s preferred gauge, rose 0.2 percent in March from a year earlier.

To contact the reporter on this story: Lily Nonomiya in Tokyo at lnonomiya@bloomberg.net

To contact the editor responsible for this story: Paul Panckhurst at ppanckhurst@bloomberg.net