Japan PM warns public debt spells future 'risk of collapse'

TOKYO: Japan's new Prime Minister Naoto Kan on Friday pledged a fiscal policy overhaul to reduce the country's massive public debt mountain, warning of a Greece-style meltdown.

"Our country's outstanding public debt is huge," said the centre-left leader in his first policy address since taking office Tuesday. "Our public finances have been the worst of any developed country."

Japan's public debt, after decades of stimulus spending and low tax receipts, is nearing twice the size of gross domestic product and has forced governments to issue ever more debt to pay for its outlays.

"It is difficult to continue our fiscal policies by heavily relying on the issuance of government bonds," said Kan, the former finance minister.

"Like the confusion in the eurozone triggered by Greece, there is a risk of collapse if we leave the increase of the public debt untouched and then lose the trust of the bond markets."

Kan has in the past advocated increasing the consumption tax, although he has not specified plans that may prove unpopular with voters ahead of upper house elections planned for July 11.

"It is unavoidable to launch a full reform of the tax system," he said, also calling for a bipartisan debate on fiscal reform.

"If we maintain the current level of issuance of new bonds, outstanding debt will surpass 200 percent of GDP in a few years," he said.