Japan to pledge 2019 tax hike to address debt mountain: reports

2 min

Tokyo (AFP)

Japan will announce Monday a sales tax hike in 2019 after repeated delays, reports said Sunday, in an effort to address the nation's huge public debt.

The world's third-largest economy has one of the highest debt-to-GDP ratios among rich nations. Much of it is held domestically at low interest rates, allowing Japan to avoid a Greek-style cash crunch.

Critics say that raising the tariff from eight to 10 percent is crucial to finance snowballing social security expenditure -- especially medical fees -- in the rapidly ageing society.

Prime Minister Shinzo Abe will announce the sales tax hike at a cabinet meeting on Monday, the mass circulation Yomiuri Shimbun and Jiji Press both reported.

The increase -- originally planned for October 2015 -- has been pushed back twice due to fears it could derail the fragile economy.

Tokyo's last tax rise in April 2014 was blamed for pushing Japan into a brief recession.

This time, Abe is confident that with new government subsidies launched alongside, he can avoid a sharp drop in consumer spending that hit the economy after the 2014 hike, the reports said.

Abe recently said that reforming the country's social security system -- pension and national health insurance, among others -- is "the biggest challenge" ahead and pledged to tackle the issue.

IMF chief Christine Lagarde warned earlier this month that the challenges facing the country will "only grow as Japan's population continues to age and shrink," noting that both the size of the economy and the population are on track to shrink by a quarter over the next 40 years.

A loss of confidence in Tokyo's ability to pay its debts could send interest rates soaring and increase the risk of a bankruptcy.

Ratings agencies have previously cut Japan's credit standing over its debt levels.