Japan tax hikes can't wait

Paris: Japan should stick to its plan of raising the consumption tax from 2014 or even earlier to demonstrate budget prudence and avert a run-up in borrowing costs, the OECD said, adding a credible fiscal consolidation plan must be top priority.

The Organisation for Economic Co-operation and Development also urged the central bank to maintain the zero rate policy and quantitative easing mainly via asset purchases until inflation returns and reaches the Bank of Japan's target of one per cent. Swift fiscal action was needed, as budget deficits projected at about ten per cent of gross domestic product for 2012 and 2013 would further push Japan's debt into uncharted territory, OECD said in its economic outlook released yesterday. The government aims to double the sales tax to ten per cent by October 2015.

"A phase-in of such an increase, which may have to be followed by more, should be enacted swiftly to demonstrate commitment to longer-term fiscal goals," the OECD said. Indeed, given the size of the task, and the risks associated with gross public debt above 200 per cent of GDP, it would be prudent to start consolidation earlier than foreseen by the government."