Japan still needs to raise sales tax, economy minister says

[TOKYO] Economy Minister Nobuteru Ishihara said Wednesday that Japan will eventually have to raise the nation's sales tax to help pay for rising social security costs in an aging society.

Speaking at a Bloomberg seminar in Tokyo, Mr Ishihara said an increase to 10 per cent from the current 8 per cent won't be enough to cover welfare payments.

"We'll gradually raise it to 12 per cent, to 13 per cent, to 15 per cent, and we'd have to hold an election to seek approval from the public to do this."

In an about-turn after vowing his policies would make the economy strong enough to withstand an increase in the levy, Prime Minister Shinzo Abe said in June that he'd delay a hike until 2019. A three-percentage-point rise in the tax in 2014 sent consumption rumbling and threw the country into recession.

With Japan facing persistent fiscal deficits, an increase in the tax could be required to fund a social safety net. Increasing the levy to a level similar to developed European countries is considered necessary by many observers, and the International Monetary Fund has said the tax should be raised in a gradual and predictable manner.

Mr Abe's economic program consists of three "arrows": aggressive monetary policy, flexible fiscal policy and structural reforms. The central bank's easing program, which began when Mr Abe tapped Haruhiko Kuroda to become governor in early 2013, has been the most prominent element of Abenomics. Some economists say, however, that the most important part in terms of potential is the third arrow to increase productivity and raise Japan's international competitiveness.

Mr Ishihara on Wednesday stressed the need to support private-sector innovation and reform working practices. He said that changes to the long-standing norm of paying wages based on the seniority of workers should be a matter for discussion.

BLOOMBERG