The Japanese government said yesterday its budget shortfall could reach US$280 billion by March 2021, as politicians push for tax hikes and other reforms to help plug the finance hole.
The “primary balance deficit” — a measure of reliance on borrowed money to fund spending — is set to hit ￥23.2 trillion (US$280 billion) in fiscal 2020, up ￥1.5 trillion from an earlier estimate in June.
The data is a blow to Japanese Prime Minister Naoto Kan’s target of achieving a surplus by then, and will fuel calls for revenues to be boosted by tripling or even quadrupling the 5 percent consumption tax.
Japanese Finance Minister Yoshihiko Noda said the government would stick to its surplus goal, telling a press conference that the target is Japan’s “promise to the international community.”
Japan’s public debt is the industrialized world’s biggest at twice the size of its US$5 trillion economy, with the welfare costs and revenue shortfall associated with a rapidly graying population adding further pressure.
Japanese Minister of State for Economic and Fiscal Policy Kaoru Yosano, a vocal supporter of a consumption tax hike, this week warned that investor confidence in Japan would be lost without reform. However, he admitted that reaching a broad consensus would be difficult.
“Among all the work of politicians, perhaps the most difficult one is to form a national consensus about tax, especially about raising burdens,” the 72-year-old told reporters yesterday.
“People may open their hearts to increased burdens only when they become convinced that the tax they pay will eventually return to them,” he said.
The figures also illustrate the political tightrope walked by policymakers trying to reconcile Japan’s dire fiscal situation with the potential negative impact of tax hikes on fragile economic growth.
“A country’s fiscal sustainability won’t improve if measures to overhaul the fiscal state cause the growth rate to decrease,” Hiromichi Shirakawa, chief Japan economist at Credit Suisse, told Dow Jones Newswires.
“Considering the severe situation in which the Japanese economy stands, it is extremely important to ensure consistency between economic growth and tax policy,” he said.
Since coming to power in June, Kan has joined a chorus of economists and lawmakers in urging discussion over raising the 5 percent consumption tax and ordered his ministers to draft social security and tax reform plans.