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Monday, January 16, 2006

Japan: The Third Way?

As its population ages, Japan should carve out a middle way between the social security systems of Scandinavia and that of the US, this at least is the opinion of finance minister Sadakazu Tanigaki, one of several contenders to replace Junichiro Koizumi as prime minister.

At the moment, benefits and tax payments were out of kilter ..“Japanese people are enjoying excessive benefits with a low [tax] burden, and passing on their debts to their children and grandchildren.” If Japan wanted to maintain mid-level benefits, its people would have to shoulder a mid-level burden, he said, referring to the fact that the population began to decline last year. “We need to engage in a nationwide debate on reform of the tax system as a whole, including consumption tax.”

In fact none of this will constitute a 'free lunch', and Japan now faces some hard. even stark, choices. One little commented point is that as interest rates were raised if deflation were to end (which I don't actually think it is about to) the Japanese governement would begin to incur ever larger service charges on that enormous debt it has. Which is one more reason the politicians are in no hurry to see the BoJ end the 'easing policy'.