Doubling Japan’s sales tax by 2015 won’t be enough to contain the nation’s growing debt load and the government needs to outline how it will pay for swelling social-welfare expenses, a Standard & Poor’s analyst said.
“There’s no way that would be enough,” Takahira Ogawa, director of sovereign ratings at S&P in Singapore, said in a phone interview yesterday, referring to the plan to raise the levy by 5 percentage points. “No matter how high the sales tax is raised, there’s no point unless the government does something with the social-welfare system.”
Japan’s government said last week that it will probably miss its goal of balancing the budget by fiscal 2020 even with the sales tax increase, yet to be approved by opposition lawmakers. Social-security expenses have more than doubled over the past two decades and will account for 52 percent of general spending in the year starting April, Finance Ministry data show.
“Since expenditure has expanded to this extent, it’ll be almost impossible to achieve the primary balance goal unless the revenue will be increased more than initially forecast or planned,” Ogawa said.
He didn’t say how high the sales tax should go. Vice Finance Minister Fumihiko Igarashi said in November the country may need to eventually raise the levy to 17 percent.
S&P has had Japan on a negative outlook since April after lowering it to AA- in January, 2011. Ogawa declined to comment on whether the company will cut the rating.
An aging population and two decades of low growth after an asset bubble burst in the early 1990s have left Japan with debt that the government forecasts will exceed 1 quadrillion yen ($13 trillion) next year. Forty percent of the population will be aged at least 65 years by 2060, according to a report by the National Institute of Population and Social Security Research.
Japan’s fiscal conditions “are getting worse, which has been generally expected,” Ogawa said.