Japan Adopts Fiscal Consolidation Targets

Tokyo, June 22 (Jiji Press)--The Japanese government on Tuesday
adopted key fiscal consolidation targets, including achieving a primary
budget surplus by fiscal 2020.
Japan aims to halve the size of its primary budget deficit to 3.2
pct of gross domestic product by fiscal 2015 from 6.4 pct expected for
fiscal 2010 ending next March, according to the targets adopted at a cabinet
meeting.
A primary budget surplus means that the government can cover all
its expenses excluding debt-servicing costs without relying on new debt
issuance.
But the targets imply the need for a future tax hike--an increase
of 6 to 9 percentage points in terms of consumption tax--in order to achieve
a surplus in fiscal 2020.
Without any tax hikes, Japan will have a primary budget deficit of
13.7 trillion yen in fiscal 2020 if the economy grows at a brisk pace of 2
pct in real terms and 3 pct in nominal terms over the coming 10 years as
envisioned in the government's long-term growth strategy adopted last week.
The fiscal 2020 deficit will be even bigger at 22 trillion yen if
the economy expands at an annual rate of 1.5 pct both in real and nominal
terms as seen in the Cabinet Office's newly compiled conservative long-term
economic estimates.
The government said it aims to rebuild its tattered state finances
based on the conservative projections.
Even though the targets are impossible to reach without tax hikes,
the government did not clearly say how it intends to achieve them. On tax
reforms, the government only said it will reach a conclusion as soon as it
can.
Prime Minister Naoto Kan has mentioned the possibility of doubling
the consumption tax rate to 10 pct. But it is unclear whether he can win
trust from other world leaders meeting in Canada late this week in Japan's
ability to live up to the fiscal consolidation targets.
The government also unveiled a three-year fiscal policy outline,
under which the government's new debt issuance excluding refunding bonds
will be lowered steadily after being kept at or below the fiscal 2010 level
of 44 trillion yen, a record high, in fiscal 2011.
On the expense front, the government will limit its general-account
expenditures excluding the debt-servicing costs to 71 trillion yen set for
fiscal 2010.
The government also adopted the pay-as-you-go principle that
requires new spending or tax cuts be offset by the same amount of permanent
financial resources.
But the policy outline allowed the government to spend beyond the
71-trillion-yen ceiling in fields believed to have strong potentials for
demand and job creation.

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