IMF Tasks Japan to Reduce COVID Support, Consider Tax Raise

The International Monetary Fund (IMF) has called on the Japanese government to cut back on its pandemic support program but to consider increasing taxes on capital income and properties as soon as the country’s economy completely recovers from the effects of the COVID pandemic.

The IMF said that as the government has to continue supporting families most affected by the pandemic, they need to, however, keep cutting back on the pandemic relief programs as the economy bounces back.

The IMF stated further, after its periodic Article 4 rounds of monitoring what is going on with Japan’s economy, that for the sake of going forward and considering the huge level of uncertainties accompanying the COVID pandemic, economic policies should be made flexible while the government adjusts the scale and content of social support in reaction to economic and epidemiological realities.

Economists look forward to seeing the Japanese economy gain more strength this year, although their risk balance is presently looking downwards, according to the IMF.

Going further, the IMF said that as soon as the Japanese economy recovers, Japan needs to return to efforts needed to control its large debt by reducing the ever-increasing medical costs for the country’s aging population. 

The Deputy Director of the IMF Asia and Pacific Department, Odd Per Brekk, said that increasing capital and property income tax, as well as increasing consumption tax from the present 10% rate, are also options to be explored. They noted that consumption tax had been a point of focus for improving the economy in the past.

He told Reuters during an interview that what the government of Japan needs is a broader scoped package of expenditure and income measures.

Concerning monetary policies, the IMF advised the Japanese apex bank, the Bank of Japan, to continue its stimulus package and get prepared to reduce interest rates if inflation remains weak.

It is noteworthy that the IMF has projected the Japanese economy to have a growth of 3.3% by the end of the year, away from the previous year’s 1.6% growth, owing to the government’s increased stimulus packages and improved global supply chain.

The IMF said that as higher importation costs help to push up the price momentum, inflation is going to remain under the Bank of Japan’s 2% target in the medium term.

Salgado Ranil, the IMF’s Japan Mission Chief, noted at a press briefing that the market effect of the American Federal Reserve’s monetary policy is also part of Japan’s risk considerations.   

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