Japan's goal to restore its fiscal health, the worst among developed countries, is still far off amid prospects for tepid economic growth and swelling spending on health, pensions and defense. Furthermore, reining in spending and boosting tax revenue have become more difficult since a consumption tax hike was twice postponed and the yen appreciated against the U.S. dollar to the detriment of exporters' profits. As difficulties mount, many economists believe Japan will not be able to meet its target of achieving a primary surplus by fiscal 2020 as internationally pledged, let alone an interim milestone set for fiscal 2018. "Should attaining the targets be dropped or postponed, confidence in Japan's finances will be eroded," said Yuichi Kodama, chief economist at Meiji Yasuda Life Insurance Co. "Since the delaying (in 2016) of the consumption tax hike, the administration's commitment or willingness to restore fiscal health has been waning," Kodama said. A primary balance deficit means a country cannot finance its annual government budget without issuing new bonds, even when debt-servicing costs are excluded.
Japan's tax revenue is expected to end up lower than the record high figure estimated in the fiscal 2020 draft budget, with critics saying the initial tally was based on an economic growth forecast that was "too optimistic." Since Prime Minister Shinzo Abe returned to power in late 2012, the actual pace of growth in the world's third-largest economy has exceeded his government's forecast only twice. In the extra budget for fiscal 2019, the Finance Ministry revised down its tax revenue estimate for the year through March to ¥60.18 trillion ($550 billion) from ¥62.50 trillion due to a drop in corporate earnings amid a slowdown of the global economy. Given the move, economists suspect that despite October's increase in the consumption tax by 2 points to 10 percent, the government would have to lower the tax revenue estimate again for the following fiscal year, from a record ¥63.51 trillion. The estimate was part of a record ¥102.66 trillion in the nation's initial general account budget for the year starting next April, which Abe's Cabinet approved Friday for submission to the Diet next year.
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.
A Finance Ministry panel urged the government Thursday to make elderly people with higher incomes pay more for medical treatment as part of efforts to improve fiscal discipline amid Japan's rapidly graying society. "In pursuit of restoring fiscal health, the biggest challenge is the field of social security," said a set of recommendations handed to Finance Minister Taro Aso by the advisory panel, calling for "equal shouldering of burdens based on their capacity." The panel urged the government to "swiftly" revise the system of reimbursing high medical expenses to appropriately reflect the income levels of patients, as there are currently uniform payment caps for people aged 70 or older. As for budget compilation for the next fiscal year starting April, the panel urged the government to ensure limiting the increase in social security expenses to ¥500 billion ($4.6 billion) from the previous year, maintaining the pace achieved in recent years. Under the budgetary request for fiscal 2017, the Ministry of Health, Labor and Welfare is asking for ¥640 billion in increased medical and other social security spending for Japan's aging population.
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.