The government is likely to project a deteriorating primary balance deficit in fiscal 2018 after delaying the second stage of a consumption tax hike, government sources said Friday. Cabinet Office projections due to be released next week show the ratio of the primary balance deficit -- which excludes debt servicing and revenue from new debt -- to nominal gross domestic product will be around 1.9 percent in fiscal 2018, higher than the 1.7 percent estimated in January. For fiscal 2020, the government is likely to project a primary deficit of around 5.6 trillion, smaller than the 6.5 trillion forecast in January, thanks to higher tax revenues on economic growth and spending cuts, the sources said. The January estimates were based on an "economic revival scenario," under which Japan will achieve economic growth of more than 3 percent in nominal terms from fiscal 2018.
Japan is expected to post a primary budget deficit of ¥8.3 trillion in fiscal 2020, even if the nation's gross domestic product continues 3 percent or higher growth in nominal terms, a Cabinet Office estimate showed Wednesday. The government agency came up with the larger primary deficit estimate than the previous projection of ¥5.5 trillion made in July 2016 in view of slower-than-expected tax revenue growth. The administration of Prime Minister Shinzo Abe aims to curb the combined primary budget deficit at the central and local governments to 1 percent of GDP in fiscal 2018. In fiscal 2020 it targets a primary budget surplus, which means that the country can cover its expenditures for policies without issuing debt securities. In fiscal 2015, the deficit stood at ¥15.8 trillion.
Japan kept the timing for balancing the primary budget unchanged on Friday but expects to see a much smaller excess than previously thought when it hits a budget surplus, underlining the government's struggle to rein in massive public debt. Prime Minister Shinzo Abe's government stuck to its forecast of achieving a budget surplus by fiscal 2027, but expects to see a smaller excess due to a downward revision to its outlook for economic growth and tax revenues since its previous projections in July. In its twice-yearly fiscal and economic projections, the government now expects the primary budget, excluding new bond sales and debt servicing, to swing to a surplus of just ¥300 billion ($2.73 billion) in the fiscal year starting April 2027. The previous projection was a surplus of ¥1.6 trillion. The latest calculations underscore the challenge the world's third-largest economy faces to fix its tattered finances as the cost continues to grow of caring for its rapidly aging population.
The government is considering setting a new target to reduce its fiscal deficit to 3 percent of nominal gross domestic product by fiscal 2021, informed sources have said. The government hopes to include the target in its new guidelines for economic and fiscal policy management due out as early as June, as it believes that its interest payments on existing bonds may soar, the sources said Friday. The European Union has a similar target for its members. In Japan, such a target has been proposed at the government's Council on Economic and Fiscal Policy, which drafts the policy guidelines. Japan's fiscal deficit is forecast to stand at 4.4 percent of nominal GDP in fiscal 2018, according to medium- to long-term economic and fiscal estimates submitted by the Cabinet Office in January.
The government 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 in the fiscal year ending March 2026 unless it takes more steps to improve its finances. That means the government will have to boost revenue by more than projected, cut spending, or both, to achieve its goal of logging a primary balance surplus by that year. A primary balance surplus means that tax revenue is more than sufficient to cover all discretionary government spending, or spending on everything but interest payments on public debt. Without further government action, the goal will not be achieved until fiscal 2027, two years behind target, according to the latest projections and the assumptions on which they are based.