By Yoshifumi Takemoto and Tetsushi Kajimoto
TOKYO (Reuters) – Japan’s government will estimate its primary budget to be balanced in fiscal year 2026, a year earlier than its previous projection made about six months ago, two sources familiar with the matter told Reuters. case.
The revised projection would assume a robust economic recovery scenario from the COVID-19 crisis and an increase in tax revenues, said the sources who requested anonymity as the new estimate is being finalized on Friday.
Regardless of this projection, the government has set a target of achieving primary fiscal balance, excluding new bond issuance and debt service charges, by FY2025 – a key indicator for diagnosing health. a country’s budget. But the goal has been repeatedly pushed back due to a delay in tax reform.
Its most recent pledge to hit that target in fiscal year 2025 included a caveat that it would be reviewed, when revised fiscal projections are released, to take into account the fallout from the pandemic.
Whether the government would keep or abandon the target in favor of more stimulus spending has been front and center as Prime Minister Fumio Kishida faced pressure from both sides within his ruling party, the Liberal Democratic Party (LDP).
Japan is struggling with a public debt that is more than double the size of its $5 trillion economy, the third largest in the world, making it the heaviest debt burden in the industrial world following the decades of massive seed money.
“It is true that tax revenues are outpacing the rise thanks to a return to massive stimulus spending, but it would be dangerous to assume an optimistic scenario that tax revenues would remain high, given uncertainties such as the coronavirus epidemic. Omicron,” said Hiroshi Shiraishi, senior economist at BNP. Paribas Securities.
“Japan needs to fly the flag of fiscal reform to gain market confidence in its debt management, but meeting the primary balance target would be difficult given the risk of a ‘fiscal cliff’ that could be caused by stopping the stimulus.”
There is uncertainty over whether Japan can step up its efforts to keep its finances in order as Kishida faces pressure to maintain or increase spending ahead of an upper house election later this year.
A large majority of Japanese businesses want fiscal support to continue flowing at least until this year, a Reuters poll has shown, even as major economies from Europe to the United States recall stimulus packages economy in crisis mode.
(Reporting by Kaori Kaneko, Leika Kihara and Daniel Leussink; Editing by Jacqueline Wong and Kim Coghill)
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