This month's featured article
A Downturn Not Much Different from Those in the Past
OGURO KazumasaConsulting Fellow, RIETI
Japan's biggest domestic concern is the sustainability of its public finance. The government debt to gross domestic product (GDP) ratio is at the highest level since the prewar days and continues to expand. This is simply delaying an excessive debt burden for future generations. Because the primary cause is the rapid rise in social security costs and the shortfalls in revenue, both of which are associated with the rapid aging of the population, the painful reforms, such as curbing social security costs and increasing taxes, cannot be avoided.
Under such circumstances, in August 2012, legislation relating to comprehensive reform of social security and taxation systems, including consumption tax increases, was enacted. The legislation includes a two-stage increase of the consumption tax rate, and the first increase—from 5% to 8%—was implemented in April 2014. If everything goes as scheduled, the next tax increase—from 8% to 10%—will take place in October 2015.
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