Japan may achieve fiscal consolidation in fiscal 2027, two years earlier than previously estimated, as tax revenue has been rising despite the coronavirus pandemic, the government said Wednesday.
Japan’s primary balance — tax revenue minus expenses other than debt-servicing costs — is expected to turn black in fiscal 2027 with a surplus of about ¥1.8 trillion ($16.4 billion) under the most optimistic scenario, the Cabinet Office said in its biannual projection.
The previous forecast released in January said the balance would still be in the red with a ¥2.8 trillion deficit in the fiscal year through March 2028, and turn black in fiscal 2029.
However, the latest projection suggests Japan will miss its goal of achieving fiscal health in fiscal 2025.
The office said meeting the target in fiscal 2025 would “come into sight” if the world’s third-largest economy can improve the balance by around ¥1.3 trillion per year through efforts to streamline its expenditure.
The upwardly revised fiscal outlook was due partly to the government’s large-scale stimulus that has “protected the domestic economy” amid the pandemic and helped the tax revenue grow more than expected, a government official told reporters.
Earlier this month, the Finance Ministry said Japan’s tax revenue in fiscal 2020 through March hit a record high of ¥60.82 trillion, far larger than the estimate of ¥55.13 trillion that the government had made by taking account of the virus impact.
Corporate tax revenue was unexpectedly solid as a result of firm business earnings mainly posted by manufacturers even under the pandemic.
The rise in tax revenue also reflected the full effect of a consumption tax rate hike in Japan from 8% to 10% in October 2019, according to the ministry.
Due to snowballing social security costs including pensions and health care amid the rapid graying of the population, Japan has been struggling to improve its fiscal health, the worst among advanced economies.
Under the rosiest scenario, Japan’s economy is expected to keep growing at least 2% in real terms and more than 3% in nominal terms from fiscal 2021, following a contraction in fiscal 2020 of a real 4.6%, or a nominal 3.9%.
If the envisaged growth rate is maintained, the nation’s gross domestic product in nominal terms could reach ¥609.2 trillion in fiscal 2024, exceeding the ¥600 trillion mark for the first time, although one year later than the previous projection, the office said.
The latest estimates showed inflation will hit the Bank of Japan’s 2% target in fiscal 2025 under the best-case scenario, pushed back one year from the January projection.
In case the Japanese economy fails to grow as fast as assumed under the rosiest scenario, the primary balance will see a ¥7.9 trillion deficit in fiscal 2025, and ¥6.0 trillion in red ink in fiscal 2030.
In fiscal 2020, Japan’s primary balance marked a ¥56.4 trillion in deficit, swollen by three supplementary budgets to tackle the pandemic.
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