The government on Tuesday pushed back its estimate for hitting the country’s fiscal restoration target by a further two years, saying that a primary budget surplus can be achieved in fiscal 2027 at the earliest.
The revised estimate was released as the Cabinet Office factored in Prime Minister Shinzo Abe’s decision to increase spending for expanded child-care support and free preschool education, and adopted a more realistic growth scenario for the economy than its previous forecast in July.
The outlook still reflects the difficult task of fixing the government’s finances as the aging of the country’s population is poised to boost social security expenditure in the years ahead.
Japan initially set a goal of attaining a surplus in the primary balance by fiscal 2020 but it has only a slim chance of achieving it.
The Cabinet Office’s calculations show the primary balance deficit would expand to 10.8 trillion yen ($97.5 billion) that year from its earlier estimate in July of 8.2 trillion yen.
It now expects a 0.8 trillion yen surplus in fiscal 2027 against its earlier forecast of a 1.8 trillion yen surplus in fiscal 2025.
Speaking at a meeting of the Council on Economic and Fiscal Policy where the latest projections were presented, Abe reaffirmed his commitment to fiscal reconstruction.
“The latest estimates do not reflect (future) efforts toward spending reform. Using them as a basis, we need to decide on the timing for attaining a surplus in the primary balance and how to do it by this summer,” Abe told members of the panel.
Abe has effectively given up on the fiscal 2020 time frame, aiming to prioritize investment in child-care support and preschool education by using part of an increase in revenue from a 2019 consumption tax hike.
The latest estimates are based on the assumption that Japan’s economy will expand around 3.5 percent in nominal terms and around 2.0 percent in real terms in the early 2020s.
Back in July, the office put gross domestic product growth at around 3.9 percent in nominal terms and 2.4 percent in real terms, a scenario that private-sector economists called too optimistic.
The reduced growth rates will also lead to a more moderate uptrend in long-term interest rates over the coming years.
For years, the administration has been pursuing both economic revitalization and fiscal reconstruction. Japan will not reach nominal GDP of 600 trillion yen until fiscal 2021, a year later than the administration’s goal, the Cabinet Office said.
Consumer prices, meanwhile, will likely rise 2 percent in fiscal 2021, highlighting the difficulty the Bank of Japan faces in achieving its 2 percent inflation target in the near future.