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OECD: Japan should hike consumption tax to 20-26 percent

Christian Fernsby |
Japan's consumption tax rate should be raised to as high as 26 percent for sufficient progress to be made in restoring the nation's fiscal health, according to a report by the Organization for Economic Cooperation and Development.

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The OECD Economic Surveys of Japan, released April 15, noted that Japan’s public debt ballooned to 226 percent of the gross domestic product, the worst among the 36 OECD member countries.

The report recommended a hike in the consumption tax rate to 20-26 percent to reduce gross government debt to 150 percent by 2060 by achieving a sustained primary surplus of 5-8 percent of GDP.

The Abe administration is set to increase the current 8 percent consumption tax rate to 10 percent in October.

The government aims to bring the primary balance, which equals the fiscal balance net of interest payments, into the black by fiscal 2025.

However, this target is set on the basis of Japan’s projected economic expansion at a relatively higher rate than it actually saw, forcing the government to postpone the target year repeatedly in the past.

The report called for Japan to “develop a comprehensive fiscal consolidation plan covering specific spending cuts and tax increases, including a further gradual rise of the consumption tax, to ensure fiscal sustainability.”

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