The Cabinet Office's latest projection for the primary balance deficit in coming years makes the government's efforts to put the nation on a path toward fiscal reconstruction appear even more difficult. After giving up on its earlier goal of achieving a primary balance surplus in 2020, the administration of Prime Minister Shinzo Abe is expected to come up with a new target for fiscal rehabilitation by around June. The administration must set a credible goal backed by feasible plans, instead of padding the goal with too rosy forecasts for economic growth. Further postponement of reaching the elusive goal risks making Japan's commitment to fiscal consolidation less credible.
In its estimate released last week, the Cabinet Office said it now expects the national and local governments combined to achieve a surplus in the primary budget balance in fiscal 2027 at the earliest — two years later than in the previous forecast six months ago. The projected delay comes as no surprise, since Abe decided last fall to divert ¥1.7 trillion a year out of the additional revenue from the planned consumption tax hike in 2019 — initially set aside for paying back social security-related debts — on fresh spending for children's education. That policy decision led Abe to officially abandon the goal of achieving the primary balance surplus by 2020 — a target that had already been deemed way off. The Cabinet Office last summer forecast the fiscal 2020 primary balance deficit at ¥8.2 trillion, while its latest projection puts the 2020 deficit at ¥10.8 trillion.
A primary budget surplus allows the government to fund its policy expenditures with basic revenue, such as tax income, without incurring new debt. Japan has posted primary balance deficits since the 1990s, and achieving a surplus is deemed a landmark in the government's efforts toward fiscal reconstruction.