TOKYO: Japan is eyeing huge tax revenues this year as the Prime Minister has also slashed deficits and potentially put the highly indebted nation on a more sustainable path.
Officials released the outline of next fiscal year’s budget ahead of formal approval set by Mr. Abe’s cabinet. Parliament, which is controlled by his ruling coalition, is expected to approve the budget in the spring.
The budget plan counts on Japanese corporate profits continuing to grow in the coming year, backed by a weak yen and cheap oil. Higher profits should allow firms to pay higher bonuses and salaries, stimulating private consumption, government officials said.
For the moment, the projection looks achievable. It assumes crude-oil prices will average $69 per barrel, whereas the global benchmark, Brent crude, was trading at around $46 per barrel Tuesday. Since Japan imports almost all its oil, the cheap prices save corporations money and, other things equal, raise profits.
However, further turmoil in Europe, a slowdown in China or weaker-than-expected consumption at home could hit Japan’s economy in 2015 and cause tax revenue to fall short of projections.
“Tax revenue has increased strongly in the current fiscal year, and it is hoped that it will grow again in the next fiscal year,” said Finance Minister Taro Aso on Friday. But he added that “there’s nothing certain about the economy.”
The government budget estimates tax revenue for fiscal 2015 will total ¥54.5 trillion ($460 billion), a 5.4% increase over the estimate for the current year, which was recently revised upward. More than half of the increase is due to a sales-tax increase that took effect last year, while the remainder hinges on a rebound in economic growth after a recession in 2014, officials said.
If the projection comes to pass, that means a 24% jump in tax revenue in three years under the leadership of Mr. Abe, who took office in December 2012, serving as a vindication of his policy of resolving the nation’s economic malaise by stamping out deflation and reviving economic growth.
The prime minister postponed a second tax increase that had been set to take effect October 2015, saying growth was more important than trying to fix Japan’s finances right away.
Japan is the world’s most indebted major economy, with total government debt more than twice its gross domestic product. So far, markets have taken the situation in stride, and the government can currently borrow for 10 years at interest of less than 0.3%.
The budget projection presumes global economic growth of 3.6%, with exports rising 5.2% in real terms. Imports are expected to grow at a more modest 3.9%.
Another reason for Japan’s falling deficit is a relatively restrained spending plan after earlier efforts by Mr. Abe to stimulate growth through government projects. Mr. Abe will keep annual spending at ¥96.3 trillion, an increase of 0.5% from the current fiscal year’s initial budget, while borrowing will be reduced by 11% to ¥36.9 trillion, the smallest in seven years, according to the budget plan.
Cheap oil prices are likely to increase national income by 1% to 2%, said Shuji Tonouchi, an economist with Mitsubishi UFJ Morgan Stanley Securities. However, economists say it isn’t clear yet whether corporations and consumers will spend the extra money and spur more sustained growth.
Japan’s fiscal consolidation plan calls on the government by fiscal 2015 to reduce by half deficits in the primary budget—which measures spending and revenue excluding new government bond issuance and interest payments. The primary budget is supposed to turn to surplus by 2020.
Mr. Abe’s policies have helped raise employment and wages have gone slightly up, resulting in higher income-tax revenue. But many of the new jobs are part-time, and many Japanese, especially outside of Tokyo, say they don’t feel the benefits of Abenomics.
