July 31, 2008 1:17PM

Typical Bad Advice from the IMF

The International Monetary Fund has a dismal reputation for peddling snake‐​oil economic advice, with higher taxes and currency devaluation always high on their list. Sometimes, I wonder whether that is an unfair characterization, but then I see that their latest analysis of the Japanese economy endorses higher taxes. Tax​-news​.com has a summary:

While welcoming the efforts being made by the Japanese government to balance its budget by 2011, the International Monetary Fund (IMF) said on Tuesday that consumption tax may have to be raised to curb public debt and absorb rising social security costs. “Larger fiscal adjustments than currently envisaged by the authorities will be required to stabilize the high public debt and make room for the fiscal costs of population aging,” the IMF stated in its Article IV report on the Japanese economy. According to the Fund, with limited scope for further expenditure cuts, future fiscal consolidation will compel the Japanese government to raise more revenues. 

The adding‐​rhetorical‐​insult‐​to‐​policy‐​injury aspect of the IMF report is the deceptive and dishonest choice of words. Higher taxes are needed to “make room for the fiscal costs of population aging,” the IMF admonishes. Did the bureaucrats never consider that entitlement programs should be reformed to “make room” for the amount of available tax revenue? The IMF also writes in the report that “Expenditure cuts are nearing their limit and further fiscal consolidation will require tax measures, yet OECD data shows that government spending this year is consuming more than 36 percent of GDP, which is a bigger burden than two years ago (and much bigger if compared to the size of government 20 years ago, 30 years ago, etc). Perhaps the IMF should not make such foolish statements until the government of Japan actually reduces spending rather than increasing it.