IMF warns US of unsustainable debt, urges VAT tax

AFP, Friday 14 Jun 2013

Fund says US government needs to enact fresh income measures, including VAT and carbon tax, to contain long term fiscal imbalance

The International Monetary Fund said Friday that despite the recent gains in paring the deficit, the US government's long-term debt profile remained unsustainable.

The IMF said the government needs to enact fresh income measures, including a value-added tax and a carbon tax, to strengthen its finances over the long term.

The Fund, in its annual report on the US economy, noted that the US government has been able to trim its huge deficits in the past two years, including a 2.5 percent deficit reduction this year after the severe sequester spending cuts.

With the economy picking up, gross US government debt was projected to peak at 110 percent of gross domestic product in 2015 and start to decline.

"But the longer-term debt profile remains unsustainable," the IMF said.

"Despite the slowdown in growth rates over the past few years, spending on major health-care programs and Social Security, absent additional reforms, is expected to increase by 2 percentage points over the next decade."

It suggested fundamental tax reforms as part of actions to confront the longer term fiscal imbalance, including eliminating many exemptions and loopholes, and introducing a value-added tax and a carbon tax.

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