IMF: More Tax Hikes?

https://mainichi.jp/english/articles/20200211/p2g/00m/0na/019000c

Excerpt and Comments:

Excerpt:

WASHINGTON (Kyodo) -- The International Monetary Fund on Monday called on Japan to further raise its consumption tax rate in stages to fund growing social security costs, while warning that its public debt may reach up to 2.5 times the size of its economy by 2030 without credible fiscal policy.

Comments: 

The public debt debate in Japan has been going on for a long time, as we will see further in the article. The idea of further sales tax increases might not be a bad idea, but its the public that has to live with it. The idea of stages might also not be a bad idea, as consumers, in any country get used to increase costs.

But the challenge will be the increase sales tax might eventually begin to be too much for some in the society and the economy, such as fixed income consumers and low-income consumers.

So the need to be very careful and maybe provide exemptions, as needed, to those who are most vulnerable to the sales tax increases.

Excerpt:

The IMF proposal comes as Japan's consumption tax rate was raised to 10 percent from 8 percent on Oct. 1, after twice being delayed. It was the first such tax hike in more than five years.

But in a report issued following annual consultations with the Japanese government, the IMF said the country's consumption tax would need to be lifted to 15 percent by 2030 and to 20 percent by 2050 to finance swelling costs due to an aging and shrinking population.

Comments:

Again probably not such a bad idea, while the Japanese population continues to decline, but again those who are on limited incomes and or low-incomes, they are going to feel it the most, and if consumer spending continues to always be a challenge, that could mean even less consumer spending.

Of course, as has been talked about for a very long time, is an increase in immigration, allowing more foreigners into society and the economy, which will spend more and consumer more, meaning more economic activity.

Excerpt:

"The consumption tax rate increases should be done gradually" on a regular, preferably legislated, schedule to smooth the economic impact and minimize policy uncertainty, the Washington-based institution said.

It also said Japan's public debt is "unsustainable" under current policies and the country's ratio of government debt to gross domestic product could exceed 250 percent in 2030 in the absence of a "credible fiscal policy framework including a concrete medium-term fiscal consolidation plan."

Comments:

Yes a gradual approach is needed so that consumers can reasonably get used to the increase sales tax. Consumers everywhere eventually get used to higher costs, but they should be done gradually.

Again the idea that Japan's debt is "unsustainable" has been thrown around for over 20+ years. However, this time, the truth might be that something needs to be done, but how and when.

Japan's debt, it must be noted is Japan's debt. It is not, for the most part owned by other countries, it is owned by Japan.

Japan is not Greece and will never be Greece, in that Greece and its debt was mostly external, owned by the EU and other countries.

Japan's debt, is internal, mostly owned by Japan. In retrospect, the US debt is mostly owned by China and Japan, but no country is going to call on a country whose debt they own to pay up, as it would mostly like force a major global financial and political crisis.

Excerpt:

Japan's fiscal health is the worst among major industrialized economies, with its public debt-to-GDP ratio standing at 237.5 percent in 2019, according to the Japanese Finance Ministry.

Noting that the population in Japan is estimated to age and shrink by over 25 percent in the next 40 years, the IMF said the result will be depressed growth and productivity due to a reduced and aging labor force, which will "magnify" fiscal challenges as age-related spending rises while the tax base shrinks.

Comments:

Yes, Japan's fiscal health has been not so good compared to other nations, but at the same time, it is still a very stable and reliable economy. The Japanese government, on the fiscal and monetary side, as done a good job of balancing the economy to maintain is stability and reliability.

Should something be done? Of course. But at the same time, don't disrupt, what is a relatively stable economy. Its working in terms of being stable. Don't just completely tear down an economy just to fix one part, while not good, is still not causing major problems yet.

Find a way to maintain stability and fix the future problems.

How much would an increase in immigration help in this situation? How much would immigration bring more income into the government to pay for the higher social security costs?

© 2020, Tom Metts,  all rights reserved