Japan’s main ruling and opposition parties have agreed to double the 5 per cent consumption tax by 2015 in a rare demonstration of political will to address government deficits in the world’s third largest economy.
The agreement, reached late yesterday after weeks of talks, opens the way for a tax rise and welfare reform legislation to be passed before the current Diet session ends on Thursday.
Yoshihiko Noda, Japan’s prime minister, has identified fiscal sustainability as the top priority of his Democratic party-led administration.
Japan’s gross state debt is more than twice annual gross domestic product, while new bond issuance has been a bigger source of government revenue than taxes for four consecutive years.
Japan’s large domestic savings pool and current account surpluses have made it easy for the government to fund state debt. But Mr Noda has repeatedly warned that action is urgently needed to avoid fiscal meltdown. – (Copyright The Financial Times Ltd 2012)
