TOKYO: The Finance Ministry of Japan is on target to post a $345 billion revenue shortfall in the fiscal year to March 2021, the target year for returning to a primary budget surplus.
The calculations, presented to a panel of Prime Minister Shinzo Abe’s ruling party on Tuesday and seen by Reuters, underscore Abe’s difficulty in reducing Japan’s debt burden – the heaviest in the industrial world – despite growth policies that have boosted tax revenues.
The ministry forecasts that even with more robust annual economic growth of 3.0 percent, general budget spending will exceed tax and other revenues by 40.8 trillion yen in the target year, widening from a 36.9 trillion yen shortfall forecast for the coming fiscal year. Under a previous government, parties including Abe’s set targets to return annual budgets to surplus in order to whittle down an accumulated public debt that is more than twice the country’s gross domestic product.
As part of that fiscal-reform drive, Abe raised the national sales tax in April to 8 percent from 5 percent. But the move sent the world’s third-biggest economy into its sharpest recession since the global financial crisis, forcing Abe to postpone by 18 months a planned further hike to 10 percent that was to have occurred this coming October. Due to boost given by “Abenomics” to growth, the government is widely expected to meet its interim goal of halving the budget deficit as a proportion of GDP from 2010 levels – excluding new bond sales and debt servicing – in the fiscal year starting in April.
But the ministry’s projections, to be submitted to parliament later on Tuesday, bolster the view that the final stages of budget-balancing will be much tougher.”The message behind these numbers is that we need to raise revenue and cut spending to fill the gap in our finances,” said Hiroaki Muto, senior economist at Sumitomo Mitsui Asset Management Co.”It is a question of whether the government will say specifically how much pain is involved or simply try to get by with a vague promise of fiscal reform,” Muto said. “I think Abe’s government will choose the latter.”
In January of last year, the ministry forecast 2020/21 shortfalls of 42.9-45.8 trillion yen, depending on whether the government undertook spending reforms, assuming robust annual economic growth of 3 percent. Japan’s economy shrank at an annual rate of 1.9 percent in the three months to September, the most recent data showed, as the effect of the sales tax hike lingered. Economists in a recent Reuters poll forecast a 0.7 percent contraction this fiscal year, rebounding to 1.6 percent growth next fiscal year. Assuming 1.5 percent annual economic growth, Tuesday’s ministry calculations forecast a revenue shortfall of 42.3 billion in 2020/21.
