A top Koizumi adviser just said what must be in the back of every thinking economist's mind:
"Japan could be "bankrupt in 10 years" unless it raises taxes, one of the top financial advisers to Junichiro Koizumi, prime minister, has warned.
Hiromitsu Ishi, chairman of Japan's tax commission and the most senior adviser on tax issues to Mr Koizumi, on Thursday told the FT that tax cuts implemented between 1988 and 2000 were "excessive". Those cuts meant Japan now had the lowest tax burden of any G7 nation at a time when tax revenues were being undermined.
Mr Ishi's tough and politically unpalatable message will sit unhappily with the upbeat news Masajuro Shiokawa will present at the G8 finance minister's meeting this weekend, where he will seek to allay international concerns over Japan's economic future.
Japan's tax revenues will drop to Y46,800bn (€397bn, £257bn) this fiscal year compared to a peak in 1990 of Y60,100bn. At the same time, the government's general account expenditure will rise to Y81,200bn this fiscal year compared to Y69,300bn in 1990. While the government has financed the deficit with bond issues in the past, these now account for a third of all government spending. At the end of last month, to the fury of the Japanese government, Moody's Investors Service downgraded Japan's sovereign debt rating by two notches. Japan's commitment to cap bond issues at Y30,000bn this year and maintain fiscal prudence means "tax rises are inevitable," Mr Ishi said.
He added that the demographic pressure stemming from Japan's ageing population and declining number of tax payers, plus a rising debt service burden, would add to the pressure to increase taxes."
Source: Financial Times LINK
For more on this, see yesterday's post.