OECD urges Japan to tackle sky-high government debt

The Organization for Economic Cooperation and Development (OECD) on Thursday urged Japan to focus on its sky-high government debt if the world's third largest economy wants to ensure its future prosperity.

In the latest OECD Economic Survey of Japan, reforms are encouraged to increase labor force participation and create more "regular" jobs, especially for women, boost productivity and put public finances on a sustainable track.

OECD Secretary-General Angel Gurria said in Tokyo with reference to the latest survey that Japan's demographic and fiscal challenges will require greater efforts and further reforms.

Such reforms are necessary "to notably to raise productivity, which now lags behind the leading OECD economies," Gurria said

"In the labor market, employment opportunities for women must be expanded. Achieving stronger and sustainable productivity gains should lead to more inclusive growth that distributes the dividends of increased prosperity fairly across society," said Gurria.

It is important that Japan remove "obstacles to female employment, notably by increasing the availability of affordable childcare" and "changing its culture of long working hours through a binding ceiling on overtime work which would improve work-life balance for all workers," the survey said.

It added that "breaking down dualism in the labor market -- the current segmentation between 'regular' and 'non-regular' workers, with differing levels of benefits, pay and employment protection -- is key to promoting inclusive growth."

It went on to say that an increase in welfare spending linked to the aging population would put "upward pressure" on government debt, which hit 219 percent of GDP in 2016 and is the highest ever recorded in the OECD.

The report urged Japan to implement a "detailed and credible fiscal plan to put the debt ratio on a downward path."

The survey suggested that public spending could be counteracted by raising additional revenues, in particular, gradually raising the consumption tax rate and increasing environmental taxes.

Japan has delayed the hiking of its sales tax to 10 percent from the current 8 percent until October 2019.

The survey also suggest that by increasing productivity Japan will be able to simultaneously tackle both its demographic and fiscal challenges and "make growth more inclusive."

"Reforms that narrow the wide productivity gaps between manufacturing and service sector firms and those between large companies and SMEs would help achieve these dual objectives," the survey said.

Priorities include improving the personal bankruptcy system to facilitate the exit of non-viable firms, promoting entrepreneurship and increasing Japan's integration in the world economy, it added. Endit