Land Of The Rising Debt

By Global Tax Weekly

India’s economy has yet to peak, but most observers would agree that in the main, the country will be looking up at the summit, rather than down at the base, in the coming decades. One really does wonder whether the opposite is true of Japan, which perhaps reached its economic peak over 20 years ago and is now staring up at a debt mountain, wondering when the summit will appear. After some pretty disastrous economic data this year, Prime Minister Shinzo Abe, perhaps the most dynamic Japanese leader in recent history for his economic polices at least, got the frights and decided to cancel a consumption tax rise from five percent to eight percent, not due to take effect until next October; the first stage of the phased increase, from three percent to five percent, which took place last April, was widely blamed for tipping the country into recession. I can absolutely understand why Abe has done this. Politicians trade in the currency of popularity, so canceling what is a highly unpopular policy is a logical move. And by calling a snap election, he can resume his political career without worrying whether sliding popularity will cast him into the political wilderness prematurely. But what is good for Abe personally might not be good for the nation of Japan. Nobody likes to see taxes rise, least of all myself. But the scale of Japan’s fiscal problems really is frightening. True, a good chunk of the Government’s mountainous debt, worth about 230 percent of the economy and rising, is owned by the Japanese public. But unless some radical solutions are found, the problems will only compound as fewer working people attempt to support an ageing and non-working population that is increasing. Certainly, hiking consumption tax by a few percent isn’t radical. But it has to be better than taking more tax from incomes, and it’s a start. Abe’s decision smacks of kicking the can down the road, which might be expedient in the short-term. But who knows how much tarmac is left? And this consumption tax phobia seems to be a peculiarly Japanese phenomenon. It’s like a force that brings death to anyone who dares to mention it. Few other Governments are so meek when it comes to raising taxes, and the Japanese should try living in Europe, where consumers pay rates of VAT of 20 percent or more. Anyway, I have some quite controversial suggestions for Japan’s age-induced fiscal crisis, which I’m just going to throw out there. The Japanese tend to live quite long and healthy lives, so a radical solution might be to abolish retirement altogether. Perhaps this could be combined with the elimination of so-called “sin taxes” on alcohol, tobacco, sugar and fatty foods to let the people work and/or drink themselves into an early grave, thus diffusing the demographic timebomb in one fell swoop. I am of course joking. Wouldn’t want to give Governments any ideas…

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