By Leika Kihara
TOKYO (Reuters) – The International Monetary Fund urged Japan on Friday to scale back emergency pandemic support, and consider raising taxes on property and capital income once the economy’s recovery from the coronavirus pandemic-induced doldrums is firmly in place.
While authorities must keep supporting households most hard hit by the COVID-19 crisis, they should continue scaling down pandemic-relief measures as the economy recovers, the IMF said.
“Looking ahead, given the large uncertainty surrounding the pandemic, fiscal policy should be nimble and flexible, adjusting the scale and the composition of support in response to epidemiological and economic developments,” the IMF said in its Article 4 policy proposal to Japan.
Japan’s economic recovery is likely to strengthen this year, though the balance of risks is tilted to the downside, it said.
Once the recovery is firmly in place, Japan must resume efforts to rein in its huge debt such as by cutting ballooning medical costs for a rapidly ageing population, it said.
Raising the consumption tax rate from the current 10%, as well as hiking property and capital income taxes, could also be among options, the IMF said.
“Japan’s tax revenues in percent of GDP are low relative to G7 countries, pointing to room for increased revenue mobilization,” it said.
On monetary policy, the IMF urged the BOJ to maintain its massive stimulus programme and stand ready to cut interest rates if inflation momentum remains weak.
In its updated World Economic Outlook, the IMF projected Japan’s economic growth would accelerate to 3.3% this year from last year’s 1.6% increase thanks to the boost from government stimulus measures and easing global supply constraints.
While price momentum will pick up further on higher import costs and robust domestic demand, inflation will remain below the BOJ’s 2% target in the medium term, the IMF said.
(Reporting by Leika Kihara; Editing by Kim Coghill)
