Although the government has little choice but to raise the consumption tax to reduce Japan's mountain of debt, any increase is likely to hit the poor the hardest, an economist at a major think tank warned Thursday.
"A rise in the consumption tax has a considerable effect on household expenditures, and its negative impact is higher for lower income groups," said Kosuke Shiraishi, senior economist at Mitsubishi Research Institute Inc.
As was pointed out in the government's 2006 economic policy guidelines in July, if revenue and expenditures continue on their current trend, the budget will have a deficit of up to 5 trillion yen by 2011. By that year, the government hopes to achieve a primary balance (before interest payments) in the combined central and local government budget. To reach this goal, the guidelines propose a consumption tax hike of a little less than three percentage points.