The International Monetary Fund on Wednesday said that Japan needs to raise the consumption tax to at least 15% to reduce its public debt and avert another international financial crisis.
A senior IMF adviser told a news conference in Washington that the Japanese government needs to be much more ambitious in its tax reform plan. The IMF said in a global financial report that doubling the consumption tax rate to 10% by 2015 will not be sufficient in itself to put Japan's debt ratio on a downward path.
In Tokyo, Deputy Prime Minister Katsuya Okada admitted that raising the consumption tax to 15% by 2020 will probably be inevitable in order to guarantee minimum pension benefits.
Meanwhile, the IMF slashed its forecast for world economic growth, warning the weight of the eurozone crisis threatens to capsize the global recovery.
The IMF cautioned that sharper budget cuts by major economies in the face of slower growth could exacerbate the slowdown, and if European leaders fail to get on top of their debt crisis, global economic output could be cut by more than half.
In an update of its September economic forecasts, the IMF cut 2012 projections to 3.3% from 4%, and said the 17-nation eurozone would contract by 0.5% this year.
It said global growth could pick up to 3.9% in 2013, but only if market panic over eurozone fragility is avoided.
"The global recovery is threatened by intensifying strains in the euro area and fragilities elsewhere," the IMF said. "Financial conditions have deteriorated, growth prospects have dimmed, and downside risks have escalated."
The lowered forecast was tied directly to the euro area economy's expected fall into "mild" recession in 2012 on the back of government spending cuts and commercial banks reducing lending.
"Growth in emerging and developing economies is also expected to slow because of the worsening external environment and a weakening of internal demand," it added.
The IMF has been warning for weeks that global growth was weakening due to the European crisis.© Japan Today/AFP