TAX NEWS - 2010

Japan's Sales Tax Gain May Widen Deficit, Credit Suisse Says

Raising Japan's sales tax prematurely would damp economic growth, push the nation deeper into deflation and widen its budget deficit, according to Credit Suisse Group AG.

While Japan's public debt is 180 percent of gross domestic product, it will be able to keep financing its budget deficit with domestic savings, said Hiromichi Shirakawa, chief Japan economist at Credit Suisse in Tokyo. Japan should maintain stimulus measures as there's no need to rush fiscal reform, according to Shirakawa.

Prime Minister Naoto Kan "should prioritize the economic recovery," Shirakawa said. "He may risk pushing Japan deeper into deflation if he rushes to raise the sales tax."

Japan needs to create at least 1.1 million to 1.9 million jobs over the short term to ease the deflationary shock likely to be caused by the tax increase, according to Shirakawa.

Kan said last week he will consider the opposition Liberal Democratic Party's proposal to double the tax to 10 percent. Yesterday he said it will probably take "at least two to three years" to raise the levy.