The government has pledged to simultaneously achieve fiscal rehabilitation and economic growth in a draft of its longer-term economic and fiscal policy blueprint, but gave no details on how to pave the way for sound public finance.
Prime Minister Shinzo Abe’s administration promised in the Thursday draft to halve the percentage of the primary balance deficit to the country’s gross domestic product by fiscal 2015 from the level in fiscal 2010 and turn the balance into a surplus by fiscal 2020.
It also committed to reducing the percentage of Japan’s public debt to GDP from fiscal 2021 “in a stable manner,” to prevent growing concerns over the nation’s fiscal health from rattling the sovereign debt market and prompting a spike in long-term interest rates.
As for the planned sales tax hikes in two stages to 10 percent from the current 5 percent by 2015, the draft said the government will make a judgment this autumn on whether to carry out the hikes, while taking into consideration economic conditions across the board.
A deficit in the balance means the country cannot finance government spending without issuing new bonds. An improvement of the balance is regarded as the critical first step toward fiscal reconstruction.
The world’s third-largest economy has been internationally forced to rebuild its fiscal house, the worst among developed economies. In a communique issued after their April meeting in Washington, the Group of 20 finance chiefs urged Japan to “define a credible medium-term fiscal plan.”
The government said in the draft presented at a Thursday meeting of the Council on Economic and Fiscal Policy that it will review social security costs “without sanctuary,” as they have been ballooning as the population ages and weighing on public finances.
Abe’s Cabinet, however, put off proposing concrete measures toward fiscal consolidation in the draft, saying it will be specified in a medium-term fiscal plan to be mapped out this summer.
The latest estimates suggest the goal for a primary budget surplus is almost infeasible as Japan’s fiscal health has shown little sign of improving. The Cabinet Office said in February that Japan could log a deficit of ¥33.9 trillion, or 6.9 percent of nominal GDP, this fiscal year, worsening from ¥25.4 trillion, or 5.2 percent, calculated last August.
On the economic front, the government said it will make efforts to shake the economy out of nearly two decades of “stagnation” accompanied with deflation, positioning the next 10 years as a period of “revitalization.”
Abe’s administration stipulated it will target an average nominal economic growth rate of 3 percent per year or a real rate of 2 percent for the coming decade by creating a virtuous circle where improvement in corporate profits ripples through households, leading to wage growth and expansion of consumer spending.
The Cabinet plans to endorse the policy blueprint on June 14, along with its growth strategy.