OECD Head Urges Japan To Fix Finances, Hike Consumption Tax

It’s globally unanimous.

And it’s moving the euro zone closer to the waterfall.

OECD Head Urges Japan To Fix Finances, Hike Consumption Tax

By Kelly Olsen

April 25 (Bloomberg) — The head of the Organization for Economic Cooperation and Development said Wednesday that Japan must get its fiscal house in order, and he supports the government’s plan to raise the consumption tax to help achieve that.

Doubling the consumption tax to 10% by 2015 “is an important step,” Angel Gurria, head of the Paris-based organization, said in a speech.

The government of Prime Minister Yoshihiko Noda submitted legislation to parliament in March that would raise the consumption tax from the current 5% in two stages. But the plan has come under fierce criticism from opposition parties and members of Noda’s own ruling Democratic Party of Japan who fear it may damage the fragile economic recovery.

Gurria said the fiscal situation requires action, pointing out that while Japan’s public debt, at more than 200% of gross domestic product, has so far been manageable given relatively low interest rates, that may not always be the case.

“Japan is vulnerable to a run-up in interest rates,” Gurria said. He said the debt situation is in “uncharted territory.”

During a question-and-answer session, Gurria was asked if he would favor raising the consumption tax before 2014 by one percentage point a year.

“I think it makes sense,” he said, noting it would start generating revenue faster, could be combined with adjustments to other taxes, and suits the gradual nature of Japan’s politics. “I think it has less risks than the present formulation,” he said.

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