Business / Economy

Government projects Japan far from achieving fiscal health goal by 2025


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.

Still, the forecast, released after a meeting of the Council on Economic and Fiscal Policy, is an improvement from the ¥3.8 trillion deficit for fiscal 2025 estimated in January, thanks to an uptick in corporate and income tax revenue.

The government is seeking to improve its fiscal health, the worst among advanced economies. But the task looks especially difficult given that Japan’s fast-graying population is likely to continue driving up social security costs.

Further casting doubt on the projections is the fact the forecast is based on the optimistic assumption that the economy will grow at an inflation-adjusted annual average of 2 percent through fiscal 2025, up from this year’s estimated 1.5 percent.

While a planned increase in the nationwide consumption tax next year will boost revenue, it could also stunt growth by causing households to tighten their purse strings.

Prime Minister Shinzo Abe has promised “extraordinary” fiscal measures to prevent such a scenario.

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