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Jul 10, 2018

Japan projects its economy far from achieving fiscal health goal by FY 2025



TOKYO - Japan is far from achieving its target of running a primary balance surplus in fiscal 2025 despite increased tax revenue, the government's latest longer-term projections showed Monday.


According to the projections, the government will run a primary balance deficit of at least 2.4 trillion yen ($21.7 billion) in the fiscal year ending March 2026 unless it takes more steps to improve its finances.


It means the government will have to boost revenue by more than projected, cut spending, or both, in order to achieve its goal of logging a primary balance surplus or having more than enough tax revenue to fund all government spending excluding interest payments on public debt.


Prime Minister Shinzo Abe on Monday directed Economic and Fiscal Policy Minister Toshimitsu Motegi to draw up a new roadmap to reduce expenditures.


Without further action, Japan will not achieve the goal until fiscal 2027, two years behind a target year that has already been pushed back by five years, according to the latest projections.


Still, the forecast, released after a meeting of the Council on Economic and Fiscal Policy, is an improvement from the 3.8 trillion yen deficit for fiscal 2025 estimated in January, due to an uptick in corporate and income tax revenue.


(Prime Minister Abe in a meeting of the Council on Economic and Fiscal Policy)


The government is seeking to improve its fiscal health, the worst among advanced economies. But the task looks especially difficult given that Japan's fast-graying population is likely to continue driving up social security costs.


Further casting doubt on the projections is the fact the forecast is based on the optimistic assumption that the world's third-largest economy will grow at an inflation-adjusted 2 percent in fiscal 2025, up from this year's estimated 1.5 percent.


While a planned increase in the nationwide consumption tax next year will boost revenue, it could also stunt growth by causing households to tighten their purse strings.


Abe has promised "extraordinary" fiscal measures to prevent such a scenario, likely in the form of tax breaks for expensive purchases such as homes and cars.



@Kyodo

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