August 19, 2019 at 12:10 JST
There is apparently little chance of the government achieving its key fiscal reform target set for the fiscal year that starts in April 2025.
But Prime Minister Shinzo Abe’s administration keeps promising that state finances will regain their health without offering any specific road map toward that goal.
The administration’s attitude toward this crucial policy challenge is extremely irresponsible. Abe needs to start answering the many questions about his fiscal rehabilitation agenda.
If the goal of securing a primary budget surplus in fiscal 2025 is achieved, the government could finance its various policy expenditures, including spending on health care, nursing care, education and disaster response programs, with its tax revenues alone without the need of fresh borrowing.
A primary surplus--a budget surplus before interest payments on past debt--would slow growth in the debt load.
If Japan’s nominal economic growth rates fail to rise well above the mid-1 percent range, the average level since Abe returned to power at the end of 2012, the government would remain stuck with a primary deficit, according to budget balance projections for the years through 2028, announced by the Cabinet Office at the end of July.
To attain the target in fiscal 2025, the total central and local government spending has to be reduced by 7.2 trillion yen ($67.7 billion). Or alternately, the tax receipts have to be increased by the same amount.
This amount is larger than the government’s defense or public works spending and is equivalent to the revenue from 2.5 percent worth of the consumption tax.
Even if the economy keeps expanding at strong nominal annual rates of more than 3 percent, the government would still find itself with a primary deficit of 2.3 trillion yen in fiscal 2025.
Under this scenario, the goal would be attained in fiscal 2027, one year later than projected in January.
After the July Upper House election, Abe said the government is on track to achieve a primary surplus in fiscal 2025.
This is a claim that seems to contradict the facts. He has also said there will be no need to raise the consumption tax rate further for at least about 10 years after the scheduled hike to 10 percent in October.
But this assertion has raised many questions. How is it possible to bring the primary balance into the black without any additional consumption tax increase, for example?
Does the government intend to bump up other taxes, such as the income and corporate taxes? Does it have any new plan to stoke economic growth for larger tax revenues?
Abe likes to boast of the fact that the government’s tax revenues, now totaling some 60 trillion yen, are running at a record high, even larger than the levels during the era of asset-price bubbles.
What he does not mention, however, is the fact that the government’s spending during the bubble economy era of the late 1980s was around 70 trillion yen. If the government keeps spending around 100 trillion yen annually, 40 percent more than when the economy was supercharged by soaring stock and land prices, it has little chance of realizing a budget surplus.
Social security spending is bound to grow further in the coming years due to the aging of the population.
The principal fiscal challenge facing the government is how to cure budget ills while enhancing the still insufficient social security programs.
Abe has yet to offer any answers to these and other questions concerning the nation’s fiscal future.
Originally, the government adopted the target of achieving a primary surplus in fiscal 2020, which starts in April next year.
Abe has pushed back the deadline by five years. Since the Abe administration is not seriously committed to overhauling state finances, it has failed to take specific actions to achieve the target, allowing fiscal health to keep deteriorating. Now, the prospects are dismal for hitting the target.
Currently, extremely low interest rates due to the Bank of Japan’s aggressive monetary expansion policy are keeping the dire fiscal situation from causing serious effects on the economy or people’s livelihoods.
Once interest rates start rising, however, the government could find itself in a full-fledged budget crisis that puts a crippling financial burden on the public.
Abe has stressed that he will not allow the public debt burden to be shifted to the next generation. He needs to start by stopping postponing the necessary debate on the gloomy budget picture.
--The Asahi Shimbun, Aug. 18
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