OECD's chief economist urges Japan to consider alternative rollout for sales tax hike

Amid debate over whether the sales tax hike slated for next April should be delayed, the OECD's chief economist on Friday said the government should consider more options and even look beyond a 10 percent rate.

Catherine Mann said Japan could, for example, pursue two consecutive annual increases of 1 percentage point, as opposed to the planned one-time 2-point jump. Looking into exactly how much of a hike is needed to repair state finances is also worth doing, she said.

"Zero and two are the ones that are on the table right now, but those aren't the only choices," she said. Mann is attending a two-day meeting through Saturday in Sendai of Group of Seven finance ministers and central bank governors.

Mann said that while the sales tax increase from the current 8 percent to 10 percent has been widely debated, 10 percent is itself not enough for debt-ridden Japan.

"Making a decision now on where that ultimate tax has to go and a smooth pathway to get there would instill both consumer and business confidence, as well as fiscal confidence," she told reporters on the sidelines of the event.

Japan's public debt to gross domestic product is more than 200 percent, the highest among developed countries.

Mann warned that as Japanese consumers are sensitive to tax changes, the government should be wary of a potential economic setback stemming from the tax hike, and suggested that fiscal measures to offset the negative impact as one strategy.

As for the world's general economic health, "it is currently at low growth equilibrium," she said. In February, the OECD cut the global economic growth rate forecast in 2016 to 3 percent from 3.3 percent, the lowest for the past five years.

Mann said at this rate of growth, countries will not be able to "deliver on promises" to their citizens, such as sound career paths for young people and pension and health care for seniors.

One topic drawing attention at the G-7 meeting is whether member economies will get on board with coordinated fiscal stimulus steps — something Japan, as meeting chair, is hoping will spur global growth.

Mann noted, however, that approaches to fiscal spending differed by country.

It is crucial, she stressed, that three policies — monetary, fiscal and structural reforms — be implemented "collectively across countries, comprehensively within countries."