Legislation to increase the country's rate of consumption tax, enacted last August, states that the government must try to achieve nominal economic growth of about 3 per cent and real growth of about 2 per cent -- implying inflation of about 1 per cent -- before going ahead with the tax hikes.

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Since the old, who have shorter time horizons, have larger propensities to consume than do the young, this transfer has fueled a huge increase in personal consumption, reducing our national saving rate (saving as a share of national income) from 10 to 15% in the 1950s and 60s to a negative 1.5% last year.

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His crucial revenue-raising decision was to increase the main rate of VAT, a consumption tax, from 17.5% to 20% in January 2011.

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