Fiscal Balance Further Delayed

Prime Minister Shinzo Abe has given up the target of improving fiscal balance of Japanese government, which was to balance revenue and expenditure by 2020. Then, when will the national budget turn to be the black? Cabinet Office offered an answer: it might be in FY 2027. Does anybody believe in that kind of baseless story? National deficit is still expected to keep on swelling.

According to the estimate of Cabinet Office, national and local primary balance is going to be raised as high as ¥10.8 trillion in FY 2020, even in a optimistic scenario with high economic growth. Prime Minister Abe announced that a part of additional income achieved in future consumption tax hike would be used not only for improving the fiscal balance, but for education for free, which was the sales point of his administration in the election of House of Representatives last fall. The extravagant Premier refused to repay for the deficit he created with his economic policies.

When the Office made an estimate last July, the amount of deficit would be ¥8.2 trillion in 2020. After Abe’s policy change, it increased by ¥2 trillion. If the government does not make any effective effort for reducing expenditure for welfare, the time for fiscal balancing will further be delayed. The point is whether the government can achieve it earlier than the estimated time.

After the Lehman Shock in 2008, most developed countries set a target that they would halve their fiscal deficit by 2013. While Japan hoped it to be turning to the black in FY 2011, Taro Aso administration postponed it to 2019, and the administration of Democratic Party of Japan changed it into 2020. Even in a positive economic trend with his economic policy, Abe administration kept on increasing national deficit by ¥30 trillion every year and accumulated national and local deficit has currently risen up to ¥1 quadrillion.

Abe administration made a setting that FY 2016 to 2018 would be the concentrated reform period, in which the increase of spending for social security would be less than ¥500 billion and for other ordinary spending less than ¥30 billion. But, the balance was not improved with lower economic growth than expected, causing less tax income. Fiscal balance has not been improved as Abe promised.

Abe administration is going to release new plan by June. “I will decide the time when it will be balanced and new plan that endorses it,” told Abe. However, Abe recognizes that economic growth is the driving force for his political agenda including constitutional amendment. It is unlikely for him to focus on fiscal improvement unless he is successful in more important issues.