Economic Survey of Japan 2005: Achieving fiscal sustainability
This chapter of the OECD Economic Survey of Japan 2005 discusses the deterioration in the fiscal situation and measures needed to restore fiscal sustainability in the light of future pressures for increased spending, notably from rising interest payments and the social security system. The government’s Medium-Term Economic and Fiscal Perspective should be improved to meet these challenges. Preventing a hike in the risk premium calls for a more credible and ambitious medium-term plan that includes a stronger link to specific spending cuts and revenue increases to reduce the budget deficit. Spending should be contained by further reform of pensions and healthcare, continued reductions in public investment and improvements in the public expenditure framework. On the revenue side, broadening the bases of personal and corporate income taxes is a priority, while the rate of the consumption tax (VAT) should be increased at some point. With growth projected to remain above potential, progress in fiscal consolidation should not be delayed.
Long abstract
