The government is coming under strong pressure to revise its goal of balancing the budget by fiscal 2025, due to requests expected from the ruling bloc for further fiscal spending in the run-up to a triennial House of Councillors election next summer.

Currently, the government is aiming to bring the primary budget balance for central and local governments to a surplus by fiscal 2025. A primary budget surplus means that a government can finance its spending on policy measures, except for debt-servicing costs, without issuing new debt.

According to estimates by the Cabinet Office in July, the government is unlikely to achieve the goal until fiscal 2027 even under a scenario of high economic growth of more than 3% annually in nominal terms.

The planned issuance of deficit-covering government bonds to finance the government’s new economic stimulus package is likely to further postpone achievement of the fiscal reconstruction goal.

On Friday, the government of Prime Minister Fumio Kishida drafted the stimulus package to include fiscal spending of a record ¥55.7 trillion to cushion the economic blow of the COVID-19 crisis.

The ruling Liberal Democratic Party has recently decided to set up a fiscal policy review task force under direct control of Policy Research Council Chair Sanae Takaichi, and has appointed Upper House lawmaker Shoji Nishida, the party’s leading advocate of active fiscal spending, as its chief.

On Friday, Nishida questioned the advisability of aiming for a primary budget surplus, saying on YouTube that it is wrong to confine the scope of fiscal expenditure to tax revenue.

The government had planned to draft last week its basic policy for compilation of the state budget for fiscal 2022, which starts in April next year. But the draft policy met with opposition from the LDP due chiefly to wording that places emphasis on reform of fiscal spending, and the government was forced to rewrite it.

The government upholds the goal of achieving fiscal soundness by fiscal 2025. But in a media interview Friday, Kishida did not rule out the possibility of his government revising the goal, saying, “We’ll reconfirm and examine it.”

Appearing on television Saturday, Deputy Chief Cabinet Secretary Seiji Kihara — regarded as Kishida’s right-hand man — suggested that the government will assess economic conditions closely to decide what to do with the primary budget surplus goal.

“I don’t think that we should steadfastly maintain it or that we should abandon it right away,” Kihara said.

The government plans to examine the impact of the COVID-19 pandemic on Japan’s economy and finances by the end of March, during which discussions on the fiscal soundness goal are expected to move forward.

In a time of both misinformation and too much information, quality journalism is more crucial than ever.
By subscribing, you can help us get the story right.