Japan set to miss 2021 budget-balance goal by $100 bln -draft

[July 22, 2014]  By Takaya Yamaguchi

TOKYO (Reuters) - Japan is set to miss a 2021 budget-balancing goal by more than $100 billion even with a planned tax increase, a draft government estimate showed, raising the political pressure for more tax hikes or spending cuts.

The 11.0 trillion yen ($108 billion) shortfall for the fiscal year to March 2021, forecast in the estimates seen by Reuters on Tuesday, highlights the difficulties facing Prime Minister Shinzo Abe in curbing public debt of more than twice the nation's GDP, the biggest debt burden in the industrial world.

Abe is trying both to stimulate the long-sluggish economy and to begin curbing the government's runaway debt. His government took the biggest fiscal-reform step in 17 years by raising the sales tax to 8 percent from 5 percent in April.

The premier must decide by around year's end whether to proceed with a plan to raise the tax to 10 percent. The Cabinet Office's draft estimate assumes the further tax increase, underscoring the need for additional belt-tightening by boosting revenues or slashing welfare and other spending in the fast-ageing society.
 

Thanks to higher tax revenue brought by economic growth led by Abe's reflationary policies, the government remains on track for its interim goal of halving the primary budget deficit, which excludes new bond sales and debt servicing, as a percentage of GDP by next fiscal year from 2010/11 levels, according to the estimates.

But, the draft report says: "We cannot be complacent at all. We are re not in a situation where we can loosen our efforts on revenue and expenditures."

The 2020/2021 primary deficit is forecast at 1.8 percent of GDP, far from the goal of a surplus. The new forecast is slightly better than a January estimate of a deficit of 11.9 trillion yen, or 1.9 percent of GDP.

"We want to reduce new Japanese government bond issuance as much as possible, as we put the utmost priority on halving the primary budget deficit by fiscal 2015/16," Finance Minister Taro Aso told reporters on Tuesday. But he also stressed the need to continue efforts to shore up a fragile recovery as the economy tries to break free of nearly two decades of deflation and is just

overcoming the impact of the sales tax hike. "We have come to a point where we are no longer in deflation. But we cannot move ahead from the current situation without continuing efforts to improve the economy while restoring public finances." The government, now setting budget guidelines for next fiscal year, aims to limit new bond issuance while ring-fencing 4 trillion yen of spending for its economic growth strategy to protect it from spending cuts. The Cabinet Office's estimate assumes price-adjusted economic growth of 2 percent and nominal growth of 3 percent on average over a 10-year period. The draft forecasts 2015/16 tax revenue of 55.6 trillion yen, the highest since fiscal 1991, due in part to higher tax revenues, up from an estimated 50.0 trillion yen this fiscal year. In its midyear review of its economic estimates, the government trimmed its growth projection for this fiscal year to 1.2 percent from an earlier 1.4 percent due to weak exports and the pullback in demand after the sales tax hike.

(Writing by Tetsushi Kajimoto; Editing by William Mallard and Edmund Klamann)

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