IMF says raise sales levy to 15%

Kyodo

The government is trying to double the 5 percent consumption tax by 2015, but the nation needs to do more to improve its fiscal health, the International Monetary Fund said Tuesday, indicating the tax should be raised to “at least 15 percent.”

The IMF also said in a concluding statement after its annual consultation mission to Japan that the Bank of Japan could further ease monetary policy to boost growth by beating chronic deflation, underscoring that the central bank’s 1 percent inflation goal will be reached “only by 2017.”

“Japan’s fiscal problems are deep-rooted,” the multilateral lender said, noting the government’s effort to enact legislation to raise the politically sensitive consumption tax to 10 percent in stages by October 2015 is “crucial to demonstrate a commitment to fiscal reform.”

But it also said reducing the public debt, the worst among major developed countries, will require additional measures that could involve “increasing the consumption tax to . . . at least 15 percent, as it is a stable source of revenue in an aging society.”

Public finances have been under pressure from swellingspending for welfare services as the number of elderly and retirees increases. The IMF said the government could also aim for a bigger corporate tax cut to boost business investment.

As for monetary policy, the IMF statement said the BOJ has supported Japan’s economic recovery mainly through its sizeable asset purchases that have provided ample liquidity to the financial system and supported business activities, but it added that the central bank could make monetary conditions even more accommodative.

The BOJ has said it will pursue powerful monetary easing with the aim of achieving the goal of 1 percent in terms of the year-on-year rate of increase in the consumer price index.

“It is important that they now take actions to reach that goal,” IMF First Deputy Managing Director David Lipton told a news conference. “In our view, that includes continuing to press ahead with monetary easing, including unconventional quantitative easing by looking at the range of assets that they can purchase.”