Japan is set to miss its key fiscal rehabilitation goal in fiscal 2020, even if the doubling of the consumption tax is completed and the economy is on a solid recovery track, an estimate released by the Cabinet Office said Thursday.
Prime Minister Shinzo Abe’s government has internationally committed to halving the ratio of the primary balance deficit to Japan’s nominal gross domestic product by fiscal 2015, compared with its level in fiscal 2010, and turning the balance into a surplus by fiscal 2020.
A deficit in the balance means the nation cannot finance government spending other than debt-servicing costs without issuing new bonds. Improvement of the balance is viewed as a critical first step toward fiscal consolidation.
The ratio of primary balance deficit to GDP, however, is forecast to be 1.6 percent in fiscal 2020, even under an optimistic scenario in which the economy expands more than 3.0 percent in nominal terms and more than 2.0 percent in real terms.
As for its goal for fiscal 2015, the Cabinet Office expects the government can achieve it, as the ratio is projected to reach 3.3 percent in the year starting in April, halved from the 6.6 percent in fiscal 2010 as committed.
The Abe administration plans to raise the consumption tax rate by 2 points to 10 percent in April 2017 to cover swelling social security costs amid the rapidly graying population.
On the spending front, the government plans to clarify how to cut expenditures ahead in its new medium- to long-term economic and fiscal policy blueprints to be released this summer.
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