The government is considering reviewing its fiscal integrity plan with an eye on giving up a goal of turning the primary balance into a surplus by fiscal 2020. Satoshi Fujii, a professor of Kyoto University’s graduate school and a special advisor to the cabinet, is proposing that the government focus on slashing the country’s debt-to-gross domestic product ratio in his book, which will go on sale in May. Prime Minister Shinzo Abe is also beginning to indicate a similar view during Diet interpellations.
As the goal of achieving a primary-balance surplus is becoming difficult amid stagnant tax revenue, concerns are rife that a high-handed fiscal austerity approach may prolong deflation and result in the deterioration of Japan’s finances.
The primary balance is projected to incur a deficit of 18.6 trillion yen in fiscal 2017. The government aims to turn this into a surplus by fiscal 2020. But according to the Cabinet Office, the primary balance deficit is estimated to decline to 8.3 trillion yen in fiscal 2020. The reason is that the strong yen in fiscal 2016 put downward pressure on corporate earnings and tax revenue is projected to fall below the estimate.
Fujii argues in his latest book, “Primary Balance Bokoku ron” [Primary balance will be the ruin of the country], published by Ikuhosha, that the government should scrap the goal of achieving a primary-balance surplus and focus on steadily reducing its debt-to-GDP ratio. Japan pledged to the international community to make “lowering the debt-to-GDP ratio in a stable manner” a plank of its fiscal consolidation initiative. He claims that “seeking a primary-balance surplus” is merely a means and giving up this flexibly is excusable.
Japan’s low interest rates are contributing to prevent debts from snowballing, while the continued expansion of the nation’s GDP is helping to curb the debt-to-GDP ratio. The Cabinet Office estimates that the percentage will continue to drop through fiscal 2025 from the peak of 189.5% in fiscal 2016.
During an Upper House Budget Committee meeting in March, Abe also indicated a shift in government focus to cutting the debt-to-GDP ratio, saying that “(the goal of a primary-balance surplus) is just a transit point to reduce the debt-to-GDP ratio.” But if this primary-balance goal is scrapped, the government’s resolve of rebuilding finances will seem to have slackened and interest rates will jump through the sale of government bonds.
In fiscal 2018, the government will conduct an interim inspection of fiscal conditions and discuss the goal of seeking a primary-balance surplus before working out an economic policy blueprint around June in the same year. (Abridged)