Japan barely makes strides in fixing its finances
Huge hole in primary balance still projected in fiscal 2020
TOKYO -- Japan remains in dire fiscal straits, with the latest estimates still showing it behind in progress toward the goal of a primary surplus by fiscal 2020, as pressure to spend mounts while the tax base shrinks.
The primary deficit is seen at around 8.1 trillion yen to 8.2 trillion yen ($71.4 billion to $72.3 billion) in fiscal 2020, down slightly from January's projection. The Council on Economic and Fiscal Policy, headed by Prime Minister Shinzo Abe, will soon release its economic outlook and estimates on revenues and expenditures -- sets of data the government uses to start drawing up the following year's budget. The powerful government panel meets this Friday and next Tuesday.
The primary balance is a key indicator demonstrating whether the national and local governments can cover policy spending with tax revenue without relying on government bonds. Japan is aiming for better financial health by bringing it into the black by fiscal 2020 -- a goal doubling as a pledge to the international community.
January's estimate showed the primary deficit at 8.3 trillion yen for fiscal 2020. The current figure is a slight upgrade, but these estimates are premised on the optimistic scenario of raising the consumption tax to 10% in October 2019 and achieving nominal economic growth of at least 3%.
There are only two ways to eliminate the 8 trillion yen deficit: cut spending or increase revenue. But tax revenue is expected to have decreased at the national and local levels for the first time in seven years in fiscal 2016, casting a shadow on the Abenomics goal of lifting tax revenue through growth. Spending will also be difficult to control, owing to rising social security costs as a result of the graying population, as well as such politically appealing proposals as free education.
The government marked the three years until fiscal 2018 as a period of intensive reform in order to reach its fiscal 2020 goal of a primary surplus. But as this midpoint approaches, it is clear that the reforms until now have not been enough. The key will be how deeply spending can be cut during the budget process starting in summer.
In this year's economic and fiscal policy report, the government added the goal of reducing the ratio of debt to GDP. The worsened fiscal circumstances apparently prompted the shift in focus. But instead of clinging to rosy scenarios, the government "should face reality," a nongovernment member of the CEFP said.
The government's outlook for real growth will likely come to 1.5% for fiscal 2017 and 1.4% for fiscal 2018. Nominal growth is expected at 2.5% each year. With consumption recovering this fiscal year, there are no indications that the economy will be worse than projected, the Cabinet Office said.