Business / Economy

Japan may achieve fiscal health in fiscal 2027: government

Kyodo

Japan may achieve fiscal health in the year ending March 2028, one year later than previously estimated, due to decreased tax revenues amid a slowdown in the global economy, the government’s latest projections showed Wednesday.

According to the long-term projections, the government will run a deficit in the primary balance, which is tax revenues minus spending except to pay interest on past debt, at ¥2.3 trillion ($21 billion) in fiscal 2025, and the balance will likely be “just about break-even” — though remaining in the red — in fiscal 2026.

In its previous projections in January, the Cabinet Office expected the economy to achieve fiscal consolidation in the year ending March 2027. But it has pushed back the estimated timing to the following year as Japan’s gross domestic product is unlikely to expand as planned due in part to trade tensions between the United States and China.

Meanwhile, the government left unchanged its assumption that Japan’s economy would grow around a real 2 percent and more than a nominal 3 percent annually between fiscal 2023 and fiscal 2025 despite the trade friction between the world’s two biggest economies, a scenario which economists may see as being overly optimistic.

If Japan’s GDP growth remains at the current level of around a real 1 percent, the world’s third-largest economy would have a deficit of ¥7.2 trillion in fiscal 2025, according to the latest projections.

In addition to boosting tax revenues, including raising the consumption tax in October as scheduled, it is necessary for the government to further reduce expenditures to meet the target of achieving fiscal consolidation in fiscal 2025, which has already been pushed back by five years from the initial goal.

The government has been struggling to improve its fiscal health, the worst among advanced economies, amid ballooning social security costs including pensions and health care, stemming from the country’s rapidly graying population.

There have been growing concerns about the pension system following the recent release of a report that estimates the average retired couple would face a shortfall of ¥20 million under the current scheme, if they live to be 95 years old.

The semiannual projections, released after a meeting of the Council on Economic and Fiscal Policy, show inflation would reach the Bank of Japan’s 2 percent target in fiscal 2023, a year later than the January forecast.

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