Japan Reaches Tax Deal That Could Help Shrink Debt

In a deal that could lead to Japan’s first substantial steps toward reducing its burgeoning debt burden, Prime Minister Yoshihiko Noda agreed with the country’s two largest opposition parties Friday on legislation to double the country’s consumption tax.

Mr. Noda has staked the fate of his administration on the bill, which would double Japan’s five-percent sales tax by 2015, hinting that he could call a general election if the plan fails to pass parliament before the current session ends next week.

During weeks of negotiations, Mr. Noda argued that Japan must raise taxes to shore up its social welfare and pension systems, which have come under growing strain as the country’s population ages. Japan’s public debt has already grown to over twice the size of its gross domestic product as social welfare spending grows and tax revenues dwindle in a deflationary economy.

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