Spending plans for fiscal 2021, approved Monday by the Cabinet, already set records, but they are also expected to balloon further with a series of supplementary budgets — like those seen in the current fiscal year — as the adverse impacts of the COVID-19 pandemic are almost certain to persist for some time.
Many private-sector economists have sounded the alarm over the erosion of Japan's fiscal discipline, taking the view that some of the economic measures drawn up by the government since the outbreak of the novel coronavirus were not urgent enough to warrant rolling out amid a sharp fall in tax revenue.
"It's a waste of money to take consumption-stimulating steps through extra budgets at a time when we have yet to contain the spread of the virus," said Hideo Kumano, chief economist at the Dai-ichi Life Research Institute.
Prime Minister Yoshihide Suga's Cabinet approved last week the third extra budget for the current fiscal year, which will run through March. The additional funds are to boost the country's general account expenditure to an unprecedented ¥175.69 trillion ($1.70 trillion) from an initial plan of ¥102.66 trillion. Annual new bond issuance will top ¥100 trillion, also the largest ever.
Under the idea of a "15-month budget," the extra budget, which includes provision for actual fiscal spending of ¥15.43 trillion, was compiled together with the fiscal 2021 draft budget of ¥106.61 trillion.
The two will finance the government's latest ¥73.6 trillion economic package, which also received Cabinet approval early this month.
Among the stimulus measures is a ¥1.03 trillion five-month extension, through late June, of the government's controversial Go To Travel subsidy program, launched in July to aid the virus-hit tourism industry.
Due to a resurgence of infections across the country since November, a government panel of medical experts has repeatedly proposed a review of the campaign, but Suga was, until last week, against rolling it back.
Then, after seeing approval rates for his Cabinet tumble in media polls, he abruptly suspended the travel initiative throughout the country during the New Year holidays.
In the third extra budget, the government also included support for digital transformation and efforts to slash greenhouse gas emissions. According to Kumano, provision for those measures should have fallen under the main budget "because most of them take effect in the medium- to long-term period."
Koya Miyamae, a senior economist at SMBC Nikko Securities, said the government may face calls to narrow the gap between the current and next year's short-term supportive steps, which will force it to commit to more huge spending in fiscal 2021.
"In that case, the goal of fiscal consolidation will likely be shelved for the time being," said Miyamae, referring to the government's target of bringing its primary balance — tax revenue minus expenses other than debt-servicing costs — into the black by fiscal 2025, which he says would be difficult.
With Japan already mired in debt of more than ¥1,100 trillion, Miyamae believes the nation may be able to return to fiscal consolidation efforts "in fiscal 2022 or later."
According to the draft budget, the primary balance in fiscal 2021 will log a deficit of ¥20.36 trillion, up ¥10.74 trillion from the previous financial year's initial plan. Tax revenue is estimated to be ¥57.45 trillion, down ¥6.07 trillion, mainly because corporate earnings have been hit hard by the pandemic.
"Although now is not the timing for that, Suga's administration will need to draw a new road map for fiscal soundness in the event that the virus spread settles down," said Yuichi Kodama, fellow chief economist at the Meiji Yasuda Research Institute.
The tax revenue estimate is based on a government forecast that the economy will grow a real 4.0% in fiscal 2021 — helped by a 2.0% positive effect stemming from the latest stimulus — after shrinking 5.2% in the current year. The growth forecast and shrinkage are the biggest since official data became comparable in fiscal 1995.
Kodama said the growth projection for the next fiscal year is "slightly excessive," noting that some measures are not necessarily expected to have an immediate effect on the economy. He also predicts that an extra budget along with additional debt issuance will be required around the middle of 2021.
Meanwhile, if COVID-19 vaccinations become widely available to the public, as the government has planned, growth of 4.0% is achievable, according to both Kodama and Dai-ichi Life's Kumano. The government aims to secure COVID-19 vaccines for all people in Japan in the first half of 2021.
"After all," said Kumano, "there's no stimulus measure better than vaccination."
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