Even if the future fiscal estimate has improved somewhat, Japan's fiscal conditions remain severe. It is imperative to achieve fiscal health steadily by carrying out thorough reforms in terms of both spending and revenue.
The government has announced a new fiscal estimate. It is estimated the primary balance will suffer a deficit of 1.1 trillion yen in fiscal 2025, the target year for achieving a surplus. This represents an improvement from a deficit of 2.4 trillion yen projected in the previous estimate.
It has been projected that the year the primary balance will turn black is fiscal 2026, one year earlier than projected previously.
Thus, the year by which the government will be able to pay policy expenses without relying on borrowings has been brought forward. This is said to be an effect of the increase in social security spending being restrained in the fiscal 2019 budget. It is laudable that efforts to reduce spending have contributed to progress in achieving fiscal soundness.
But there is no denying that business prospects, which were used to compile the new estimate, are optimistic and estimates for items including revenue are projected to be even higher.
The nominal growth rate, which is close to what is felt by the average household economy, is estimated to hover at about 3 percent, a level that has not been achieved since the period of the bubble economy, which was marked by high economic growth.
It is natural for the government to set a target of high economic growth, but there is a strong sense of uncertainty about business prospects. The potential growth rate, which reflects real economic capacity, remains at 1 percent or so.
It is inevitable that the premise for the fiscal estimate will be regarded as too optimistic. It is feared that fiscal discipline will be loosened and improvement of the primary balance delayed.
Integrated reform vital
The government has also presented an estimate based on the assumption that the nominal growth rate will hover at the mid-1 percent level.
In that case, there would still be a deficit of as much as 6.8 trillion yen in fiscal 2025, which is equivalent to revenues that would be earned by raising the consumption tax rate by more than 2 percentage points.
The estimate also takes into account the consumption tax rate hike to 10 percent scheduled for this October. Even if the rate increase is carried out, there is still a long way to go to realize fiscal soundness.
The government should work out measures to attain fiscal health by using this estimate as its main reference.
Three times it has postponed the year targeted for achieving a surplus in the primary balance. It cannot be allowed to delay the target year any longer.
In this regard, the key is how to cover social security expenditures that account for one-third of the national budget. The postwar baby boomers will begin to turn 75 in 2022, boosting social security spending sharply.
As long as there is no economic crisis, the government will implement this year's sales tax rate hike to 10 percent. It will look into the possibility of a further increase with an eye to the future. It is essential to strengthen the foundation for securing stable fiscal sources to sustain social security programs.
On the spending side, too, reform will be inevitable to promote such initiatives as increasing financial burdens in medical treatment and nursing care fields. It is necessary to carry out integrated reform of social security and tax systems, including setting numerical targets.
In the House of Councillors election set for this summer, both the ruling and opposition parties should face the severe fiscal situation squarely and hold constructive debate on the matter.
(From The Yomiuri Shimbun, Feb. 1, 2019)
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