TOKYO – Japan Today
The International Monetary Fund on Monday urged Japan to double its consumption tax rate to 20 percent by 2050 to cover its ballooning social security costs due to the rapidly aging population.
The Japanese government just raised the rate to 10 percent last month, a move that has stoked fears the policy will stifle the country’s moderate growth.
“From the perspective of the IMF, we believe that a gradual further increase of the consumption tax can help” Japan achieve its goal of fiscal consolidation by 2025, IMF chief Kristalina Georgieva said in Tokyo.
“Based on what other countries have done, we think there is more space, not immediately but over time, (for Japan) to rely more on consumption tax,” the new IMF managing director told a press conference following the fund’s annual consultation with the government.
In a statement released after the consultation, the Washington-based institution also called for Japan to extend a set of countermeasures to mitigate the negative impact on consumer spending from the Oct. 1 tax hike from 8 percent.
Tokyo has already taken such measures as a reward points program for cashless payments and tax breaks on cars and houses.
The IMF expects Japan’s economy to grow by a real 0.8 percent this year while projecting the pace would slow to 0.5 percent in 2020. Looking forward, the report pointed out that the world’s third-largest economy faces a range of downside risks.
“Given the importance of manufacturing in the Japanese economy, a further slowdown of global manufacturing would hurt Japan’s exports and investment — potentially turning into a significant downside risk to growth if the slowdown spills over to services,” it said.
The IMF estimated the aging and depopulation of Japan could reduce the country’s real gross domestic product by 25 percent in four decades under current policies.
But the report also said the implementation of structural reforms such as deregulation and labor market reforms, accompanied by accommodative monetary policy and efforts toward fiscal consolidation, could help offset the effect and boost real GDP by as much as 15 percent over the same period.
Georgieva said, “Labor market reforms are the top priority, particularly to enhance worker productivity and the pass-through of demand stimulus to wages and prices.”