The outbreak of the novel coronavirus has further shaken the nation's fiscal condition. The government should reject optimistic outlooks and draw up a new road map for fiscal reconstruction.
The Cabinet Office has compiled the latest fiscal projections over the mid- and long term. The latest projections show that the primary balance of central and local governments will fall into a deficit of 7.3 trillion yen in fiscal 2025, which is supposed to be the target year for putting the primary balance in the black. The deficit figure has doubled from the one presented in the previous projections in January.
Achieving a surplus is expected to be further delayed to fiscal 2029, according to the latest projections.
The primary balance is an indicator of how much government policy spending can be secured without relying on government bonds and other debt. The government has said it will not change the target of achieving a surplus in fiscal 2025, but it appears to be difficult to realize this goal.
The estimated increase in the primary budget deficit has been largely attributed to the fact that the government has implemented massive economic measures. Spending by the central government has exceeded 160 trillion yen for fiscal 2020, and government bonds worth about 90 trillion yen have been newly issued.
It is understandable that the government has expanded spending as an emergency measure to protect the livelihoods of the public. It should not hesitate to implement the necessary spending for urgent issues, such as strengthening medical services and responding to damage caused by heavy rain, in addition to providing financial assistance to companies and individuals.
The problem is how optimistic the government is in its economic and fiscal outlook.
The latest projections were compiled based on the assumption that the nation's gross domestic product would achieve a V-shaped recovery from fiscal 2020 to 2021. The government also forecasts that the nominal growth rate, which is close to what is felt by household economies, will exceed 3% from fiscal 2021 on, thus generating a significant increase in tax revenues.
These assumptions cannot be described as realistic, considering that the number of coronavirus cases continues to increase at home and abroad.
The nation's potential growth rate, which reflects real economic capacity, remains at nearly 1%. The economic expansion, supported by the Abenomics policy package, ended in October 2018 after 71 months, failing to break the postwar record.
The Cabinet of Prime Minister Shinzo Abe has stressed "no fiscal health without economic recovery," and this stance is not wrong in itself. It is important for the government to inform the public of what is necessary and what should be done for fiscal reconstruction, based on realistic forecasts.
First of all, the government is urged to make all-out efforts to achieve a balance between infection control and economic activity. On top of this, it has to promote reform on expenditures.
In drafting a budget for fiscal 2021, ministries and agencies will make requests with essentially no ceilings, raising concerns that expenditures will swell. The government is urged to carefully examine how expenditures should be spent, and to prioritize necessary projects.
It is essential to curb soaring costs for social security. It is necessary to seek the understanding of the elderly about painful reforms, such as increasing the portion of medical fees they will have to pay on their own.
Needless to say, economic growth is also important for fiscal reconstruction. It is important to raise the nation's potential growth rate by giving a massive boost to digitization, an area in which Japan lags behind other countries.
-- The original Japanese article appeared in The Yomiuri Shimbun on Aug. 2, 2020.
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