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Are Japan’s Taxes Too Low?

Are Japan’s Taxes Too Low?


Even though they live in one of the most indebted nations in the world, economists say that when it comes to taxes, the Japanese have it pretty easy.

According to figures released Friday by the Ministry of Finance, Japanese people will pay 41.6% of their income to the state in the form of taxes and social security fees in the fiscal year that starts in April. That is the highest on record. Social security spending accounts for 42% of the total burden, up from 33.5% two decades earlier.

It may sound like a lot, but economists and government officials point out that the Japanese are getting a sweeter deal than many of their overseas counterparts.

In Sweden and France, countries with high social-security spending like Japan, the rate for taxes and fees is 58.2% and 61.9%, respectively. The U.S. is an outlier. Less than a third of Americans’ incomes go to taxes and social security.

With Japan’s public debt at more than twice the size of the economy, fiscal disciplinarians say the only solution is to raise the tax burden.

The International Monetary Fund, which has long been after Japan to get its fiscal house in order, suggests that the national sales tax could rise to at least 15%. The Organization for Economic Cooperation and Development has also suggested an increase. Japan’s government plans to raise the tax to 10% by 2015.

The low tax burden is also why some economists say investors haven’t lost faith in Japanese government bonds. The yield on a 10-year Japanese government bond on Friday was around 0.615%, the lowest on any sovereign debt in the world.

“Japan’s consumption tax rate is one of the lowest in the world. I think you can say the fact that there is room to raise this level that is helping support the Japanese bond market currently,” said Hajime Takata, chief economist at Mizuho Research Institute.

Other fiscal disciplinarians argue that continued tax raises won’t be enough to keep bond investors — or taxpayers — happy in the future. Mounting social security payouts will also have to be curbed, they argue.



This news was published on February 7, 2014.