IMF asks Japan to push ahead with sales tax hike

WASHINGTON: The IMF asked Japan to push ahead with a controversial consumption tax increase Wednesday, as part "early and credible" fiscal reforms to curb the nation's huge debt.

The International Monetary Fund called for fiscal reforms to "begin next year centered around a gradual increase in the consumption tax."

It also called for those measures to be "followed by a sustained reduction in the structural primary deficit over the next decade."

Japanese Prime Minister Naoto Kan's pre-election talk of tax reforms, including raising the consumption tax, and subsequent backpedaling were seen as a key reason behind the election rout of his Democratic Party of Japan (DPJ) in last Sunday's parliamentary upper house elections.

Newspaper surveys found that nearly two thirds of respondents favor a debate about raising the sales tax to restore battered public finances, which have seen public debt soar to nearly twice the size of the economy.

The IMF said the debt crisis in Europe had raised the "uncertainty and downside risks" around Japan's economic outlook and sharpened the focus on its massive debt problem, the IMF said in a report after annual consultations with Tokyo.

Bringing down the country's public debt, one of the highest among advanced economies at 110 per cent of gross domestic product, "will require a large and protracted adjustment that will be made more credible by an early increase in the consumption tax," the Washington-based IMF said.

The fund called for a "fiscal rule featuring a public debt cap and a primary surplus target," saying it could strengthen credibility and lock-in fiscal gains.