TOKYO – The Japanese government is set to re-examine its goal of achieving fiscal consolidation in fiscal 2025 due to growing calls within the ruling Liberal Democratic Party to boost public spending to prop up the economic recovery, which is now threatened by rising raw material prices, senior LDP members said Thursday.
Such a review will be stipulated in the government’s annual fiscal and economic policy guideline for the second consecutive year, possibly delaying the restoration of Japan’s fiscal health, which is already the worst among major developed countries due to increasing social security costs amid the rapid aging of the population.
The 2021 guideline raised speculation that the target year may be postponed. But Prime Minister Fumio Kishida said in January that the government would stick to its present goal after the review.
The Cabinet is expected to approve the draft policy blueprint for 2022 on June 7.
The world’s third largest economy aims to put its primary balance — tax revenues minus spending except to pay interest rates on past debt — into the black in the year through March 2026. The government raised consumption tax to 10 percent from 8 percent in 2019 to help attain the target.
The government also expects record tax revenue in the current fiscal year thanks to higher corporate tax income in the wake of the recovery of the pandemic-hit economy.
But hopes for fiscal restoration are diminishing, given recent price surges, initially triggered by supply chain disruptions from the pandemic and later exacerbated by the Ukraine crisis.
Calls for more fiscal spending are increasing among a group of LDP members including former Prime Minister Shinzo Abe to ensure the economy is put back on a steady growth path. Last week the group proposed that the government re-examine the target year of the fiscal health goal.
Another group of LDP members, set up directly under Kishida, proposed Thursday that the government maintain the current goal, though a review may be necessary depending on the global economic situation.