The government will probably miss its self-imposed target of balancing the budget by fiscal 2011 because of lower economic growth and weaker-than-expected tax revenues, the Cabinet Office said Thursday in its latest economic outlook, which was released the same day.
According to the Cabinet Office, nominal economic growth in fiscal 2011 will come to 3.3 percent instead of 3.9 percent as previously forecast, and the primary balance — a key gauge of a government's fiscal soundness — will end up with a deficit of ¥700 billion, excluding debt-servicing and bond-issuance costs.
The government has been trying to achieve a combined primary balance surplus for the central and local governments by fiscal 2011 as part of fiscal reforms.
But the outlook indicates it will end up with a ¥700 billion deficit equivalent to 0.1 percent of gross domestic product in fiscal 2011, even if the government delivers on its fiscal 2006 promise to cut spending by ¥14.3 trillion over five years.
According to the government's earlier projections, the primary balance was supposed to end up with a ¥1.4 trillion surplus.
The prospects for fiscal reform started looking increasingly grim last year, when the government slashed its GDP forecast to 1.3 percent from 2.0 percent as tighter construction regulations helped to strangle housing starts and poured cold water on the construction industry.
If the government's growth scenario fails, it will have to slash spending even further or raise taxes, economists say.
But ruling bloc lawmakers are reluctant to address the political taboo, especially with a general election widely expected this year.
Economic and Fiscal Policy Minister Hiroko Ota repeated at a news conference Thursday that the government should stick to its goal of achieving a primary balance by fiscal 2011, but didn't suggest how this could be accomplished.