Original Author: YUKA HAYASHI @ WSJ.comJapan, burdened with the highest debt load of any developed nation, on Friday took its biggest step in years to contain the problem, approving a plan to double the national sales tax by 2015.The hard-fought tax increase shows how it is possible for advanced democracies—struggling to curb government borrowing and adjust fiscal policies that have allowed their citizens to live beyond their means for years—to cut government borrowing.But it also highlights the difficulties. Despite the tax increase, Japan's spending is still expected to far exceed government revenue for years, and analysts say more tax increases and benefit cuts are needed to address budget shortfalls. The tax increase, which received final legislative approval Friday, will slow the rate of issuance of Japanese government bonds. But the new revenue will quickly get consumed by projected growth in retirement-program spending for the country's rapidly growing population of seniors. Lawmakers dropped plans to curb entitlements, which were seen as more politically contentious than the tax increase.The move is Tokyo's second big effort at fiscal consolidation since Japanese government bonds, or JGBs, lost their triple-A rating in 1998, well before countries such as the U.S. and France were hit with downgrades. It follows sharp public-works spending cuts launched a decade ago that temporarily improved the books before deficits started exploding again.Japan's outstanding debt now equals 214% of its gross domestic product, according to the Organization for Economic Cooperation and Development.Japan has so far been spared the bond-market punishment facing the beleaguered euro zone. But fears of contagion from Europe, and warnings from credit raters of further downgrades, pushed Japanese politicians to set aside their usual fractiousness. Decision-making paralysis has prevented them from addressing a number of challenges, from boosting a long-slumping economy to crafting a new energy policy following the sharp loss of nuclear power after the Fukushima Daiichi accident.The two biggest opposition parties this summer joined the ruling Democratic Party of Japan to back the tax increase, and Prime Minister Yoshihiko Noda staked his political career on it.Mr. Noda's popular support, battered in part by public opposition to higher taxes, hovers just above 20% in many polls, while dozens of lawmakers bolted from his party to protest the levy. In order to overcome last-minute snags, Mr. Noda on Wednesday had to pledge to dissolve parliament and call an election in "the near term"—a move seen as likely to end his tenure barely a year after taking office.Mr. Noda's successful gambit to push through the debt-limiting measure comes as his fellow Group of Seven leaders struggle to curb their own borrowing binges. In the U.S., President Barack Obama and Congress must come up with a deficit-reduction package or tumble off a fiscal cliff before the year's end, when billions of dollars of mandated spending cuts and tax increases automatically kick in.Europe's efforts to cut sovereign-debt burdens by imposing austerity have taken a toll on governments across the region: incumbent parties in France, Greece, Spain, Portugal and Ireland have been ousted in elections, while Italy has changed prime ministers.The Japanese legislation barely delays the day of fiscal reckoning. The measure is expected to bring in ¥10 trillion ($128 billion) in new revenue per year, but the government's total annual expenditure is projected to grow by ¥10.9 trillion from the current level in three years, wiping out the revenue increase.Over the following five years, the government forecasts spending will grow at a rate three times the annual increase in tax revenue. The big expense: Japan's rapidly aging population. In 1995, 14% of Japan's population was at least 65 years old, while social security and related expenditures took up 17% of the budget. In 2010, seniors were 23% of the population—while senior-related spending ate up 29.5% of the budget. Absent radical change in entitlement programs, Japan's demography is on track to swamp its finances."Japan may be on the leading edge of a new economic era, an era of secular economic stagnation, which certain other fast-aging developed countries will soon enter," says Richard Jackson, director of the Global Aging Initiative at the Center for Strategic and International Studies in Washington.The burden of escalating payments for the elderly is falling on an increasingly pinched younger generation of Japanese. While spending on elderly benefits—and the cost of serving debts to fund them—rises steadily, government expenditures on education and science have fallen.That is creating irritation among many in their 20s and 30s who have had to make do with low-paying temporary jobs, as companies have responded to two decades of stagnation by reducing the number of young people they hire and cutting pay and benefits.One network-news show recently described people in their 60s and 70s as "the generation that got away" before Japan's next wave of problems. Those in their 40s and 50s were "the generation desperate to get away." Those in their 20s and 30s: "The generation that can't get away."Many retirees feel they are owed every yen coming to them. Yoshio Taki got a job with a Toyota Motor Corp. affiliate as a high school graduate in the late 1960s, as Japan's economy grew exponentially, led by exports. After two decades at the company, in the mid-1990s Mr. Taki started a small machine-parts factory, which he sold this year.Mr. Taki and his wife paid pension premiums for over four decades. At 63, Mr. Taki is now retired, collecting a monthly ¥120,000 ($1,525) in pension benefits.He feels he deserves every single yen. "In the past 20 to 30 years, I worked till the wee hours of morning almost every day," Mr. Taki says. "I am now looking forward to doing so many things I didn't have time for before. Playing golf, going river fishing and growing grapes and melons."His 24-year-old son, a graduate student, worries how that will affect him. "There will be no money left in the pension system when our turn comes in 40 years," says Yuya Taki. "I am worried things are only going to get worse unless we do something."

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