Japan risks falling into a similar sovereign-debt crisis as Europe if it doesn’t get the world’s “worst” public debt situation in order, a former finance minister said.
“What’s happening in Europe could take place someday in Japan,” Hirohisa Fujii, chairman of the ruling Democratic Party of Japan’s tax commission, said at the Foreign Correspondents’ Club of Japan in Tokyo today. “Politicians must understand Japan has the world’s worst debt situation.”
Japan’s public debt is projected to reach 228 percent of gross domestic product in 2013, around double the average forecast for Group of 20 nations, the Organization for Economic Cooperation and Development said in a report released Oct. 31. Vice Finance Minister Fumihiko Igarashi said today the nation would need to eventually raise its sales tax to 17 percent from the current 5 percent to pay for growing welfare costs as the country’s population ages.
“A tax rate of 10 percent will be needed for some time, but the social security system can’t be managed unless it becomes about 17 percent,” Igarashi said at a forum in Tokyo.
Moody’s Investors Service and Standard and Poor’s have lowered Japan’s credit rating this year, pointing to the government’s inability to lay out plans to cut its debt burden.
The International Monetary Fund said in July that Japan should raise its consumption tax rate to 7 percent or 8 percent in 2012, before gradually increasing it to 15 percent to help reduce the nation’s debt.
Double Sales Tax
Japan has pledged to double the nation’s sales tax from 5 percent by 2015. The government projects public debt will exceed 1 quadrillion yen ($13 trillion) in the year ending March as the nation pays for reconstruction costs from March’s record earthquake.
"The current social security system in Japan is built on a mountain of debt," Fujii said. He’s against making anything exempt from the sales tax because "when you have exemptions in place, they always lead to some kind of vested interests," the lawmaker said.
Prime Minister Yoshihiko Noda said on Oct. 31 he would call a general election before increasing the sales tax rate. Public opinion is split over the tax plan, with 50.4 percent of respondents supporting the doubling of the rate and 48.1 percent opposed, a Kyodo News survey released on Nov. 6 showed.