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ECONOMY > Finance

Japan still far from envisioned FY 2020 primary budget surplus

  • July 18, 2017
  • , Kyodo News , 7:44 p.m.
  • English Press

The Japanese government’s stated goal of achieving a primary balance surplus by fiscal 2020 remains elusive, though the deficit that year is now forecast to be slightly less, according to Cabinet Office projections released Tuesday.


The office expects a primary balance deficit of around 8.2 trillion yen ($72 billion) in fiscal 2020, down slightly from the 8.3 trillion yen projected in January.


The revision factored in efforts to rein in spending, but tax revenue is expected to be lower than previously thought as growth projections for the years to fiscal 2020 were downgraded.


A primary balance deficit means even after excluding debt-servicing costs, the government cannot finance its annual budget without issuing new debt.


The Cabinet Office projected the percentage of the primary budget deficit to nominal gross domestic product at 1.3 percent in fiscal 2020, little changed from the 1.4 percent projected in January.


The estimates were presented to a meeting of the Council on Economic and Fiscal Policy, whose members are drawing a rough picture of the budget for fiscal 2018, which starts next April.


Prime Minister Shinzo Abe said fiscal rehabilitation cannot be achieved without sustainable economic growth.


“We will eliminate wasteful spending and prioritize allocating funds to policy items that are truly necessary such as investing in human resource development and boosting productivity” in the fiscal 2018 budget, Abe told a panel meeting at his office.


For Japan, fixing its tattered finances is important as its rapidly aging population inevitably increases already ballooning social security expenses.


In recent years, Abe has touted growth in tax revenue as one of the achievements of his “Abenomics” policy mix. But tax revenue fell in fiscal 2016, due largely to a stronger yen that dented exporters’ profits and therefore corporate tax revenue.


Economic and Fiscal Policy Minister Nobuteru Ishihara told reporters that increasing tax revenue is critical in guiding Japan toward fiscal restoration.


Japan “should never change its stance to achieve a primary balance surplus by fiscal 2020 and reduce the debt-to-GDP ratio in a stable manner,” the minister said.


Abe, who has put off until 2019 raising the consumption tax from 8 percent to 10 percent, is looking for money to finance his policy goal of making children’s day care and preschool education free.


Based on the latest projections, Japan will also miss its medium-term goal of reducing the primary deficit as a percentage of nominal GDP to around 1 percent in fiscal 2018. The Cabinet Office puts the figure at 2.4 percent for that year.


Those projections are based on the scenario that the Japanese economy will grow 3 percent or more in nominal terms, and by at least 2 percent in real terms. Japan’s economy registered an annualized real 1.0 percent expansion in the January-March quarter.



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