New projections suggest that social security spending could rise by 8% of GDP by 2040. The government has already increased social security contributions in recent years and there is some scope to increase them further. By contrast, sizeable hikes to consumption or income taxes don’t appear to be on the agenda, even though they are low by international standards. As a result, the budget deficit and the ratio of public debt to GDP are set to increase. But as long as the Bank of Japan is keeping a lid on bond yields, the government’s interest bill won’t balloon.
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