Japan risks falling into a similar sovereign debt crisis as Europe if it doesn't get the world's "worst" public debt situation in order, a former finance minister said.
"What's happening in Europe could take place someday in Japan," Hirohisa Fujii, chairman of the ruling Democratic Party of Japan's tax commission, said at the Foreign Correspondents' Club of Japan on Monday. "Politicians must understand Japan has the world's worst debt situation."
Japan's public debt is projected to reach 228 percent of gross domestic product in 2013, around double the average forecast for the Group of 20 nations, the Organization for Economic Cooperation and Development said in a report released Oct. 31.
Vice Finance Minister Fumihiko Igarashi said Monday the consumption tax will have to eventually be raised to 17 percent from the current 5 percent to pay for growing welfare costs as the population ages.
"A tax rate of 10 percent will be needed for some time, but the social security system can't be managed unless it becomes about 17 percent," Igarashi said at a forum in Tokyo.
Moody's Investors Service and Standard & Poor's have lowered Japan's credit rating this year, pointing to the government's inability to lay out plans to cut its debt burden.
The International Monetary Fund said in July that the consumption tax rate should be raised to 7 percent or 8 percent in 2012, before gradually increasing it to 15 percent to help reduce the national debt.
The government has pledged to double the consumption tax from 5 percent by 2015.
It projects that public debt will exceed ¥1 quadrillion in the year ending March as the nation pays for reconstruction costs from the March 11 quake and tsunami.