Economists are split over how long Japan’s government has to rein in the world’s biggest debt burden, a Bloomberg News survey shows, adding to a debate on whether the government should keep ratcheting up a sales tax.

Eleven of 34 analysts said the government has four years or less to put fiscal policy on a sustainable path and avoid a crisis, while seven said it has over 10 years. BNP Paribas SA and Credit Suisse Group AG were among five saying it’s too late to avert one. UBS AG says chances of a fiscal crisis are remote.

The lack of consensus offers an opening to opponents of a 2 percentage point increase in the sales tax, due next year after a 3-point jump next month. At stake is ensuring an improvement in Japan’s finances to assure demand for public debt remains once the central bank, the biggest buyer of the securities, achieves its inflation target and tapers stimulus. 

“The government should demonstrate a clear road map for fiscal reconstruction before 2 percent inflation takes root,” said Yoshimasa Maruyama, chief economist at Itochu Corp. “If it doesn’t do that, investors might attack.”

A longer period would offer Prime Minister Shinzo Abe and his potential successors time to focus on strengthening economic growth before addressing a shortfall in social-security financing. Government debt currently exceeds twice the size of gross domestic product.

While BOJ Gov. Haruhiko Kuroda repeatedly says it’s too early to discuss an exit strategy for the central bank’s easing, he has signaled an immediate need to address fiscal challenges.

Kuroda praised Abe for his October decision to raise the sales tax to 8 percent, saying it was “very meaningful,” and urged continued fiscal consolidation efforts.

Having warned Feb. 12 that doubts over sustainability of Japan’s finances would push up bond yields, Kuroda said in a March 13 interview with the Asahi newspaper that a corporate tax cut Abe plans would reduce revenue and should be considered within the overall tax framework.

Japan’s debt will equal 242 percent of the economy by the end of 2014, according to International Monetary Fund. Just 8 percent of its bonds are held by overseas investors, reflecting a large pool of domestic savings.

A risk for the government in coming years is that cushion will erode as baby boomers start to retire in larger numbers from 2015 and draw down savings, said Hidenori Suezawa, a financial market and fiscal analyst at SMBC Nikko Securities Inc. 

(Bloomberg)