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Govt’s latest fiscal projections reveal optimistic views on economic growth

The Yomiuri ShimbunFiscal reconstruction that relies on economic growth is risky. It is imperative to steadily carry out reforms in fiscal spending and revenue, thus ensuring a path to putting fiscal balance on a sound footing.

The government has compiled its latest fiscal projections. It has set a goal of putting the primary balance of central and local governments into the black in fiscal 2025, but even under the latest fiscal projections, the nation will suffer a fiscal deficit of ¥2.3 trillion that fiscal year, an increase of ¥1.2 trillion over the previous projections released in January. The government should accept this seriously.

The margin of the deficit was forecast to expand due to a decrease in tax revenue, as the growth rate is anticipated to turn downward mainly due to the effects of U.S.-China trade friction. The government’s forecast for the real-term economic growth rate, excluding the effect of price fluctuations, for fiscal 2019 has been revised downward from about 1.3 percent to 0.9 percent.

Japan’s fiscal situation is the worst among advanced nations. The outstanding debts of central and local governments amount to ¥1.1 quadrillion. The debts to be repaid by future generations cannot be further increased.

The primary balance is an indicator of whether government policy spending can be secured without relying on debt. Putting the primary balance into the black is a milestone for fiscal reconstruction. In the latest projections, a primary balance surplus is expected to be achieved in fiscal 2027.

The problem is that the government is optimistic in its economic growth rate projections. The government forecasts that the nominal growth rate, which is close to what is felt by household economies, will exceed 3 percent in fiscal 2023 and onward.

The growth rate for fiscal 2018, which ended in March 2019, was held to 0.5 percent. Amid uncertain prospects for the global economy, it is unreasonable to project such high growth rates as those forecast during the period of the economic bubble.

Fiscal reform inevitable

Of course, economic growth is indispensable to fiscal reconstruction but it is taboo to presuppose a growth rate greater than it actually will be.

The released projections include forecasts made when a nominal growth rate is set at the 1 percent level. In these projections, the deficit in fiscal 2025 will amount to ¥7.2 trillion. This could make the projections more realistic. In that case, it is impossible to ascertain the prospects of a primary balance surplus.

Spending cuts are indispensable to resolving a huge amount of fiscal deficit. Reining in social security spending, which accounts for one-third of the national budget, is the biggest task to be tackled.

Postwar baby boomers will begin to turn 75 years old in 2022. This will lead to further increasing medical and nursing care costs. Benefits and burdens should be reexamined urgently.

It will become necessary to seek the understanding of elderly people regarding an increase in the portion of medical fees they will have to pay on their own. The government must explain in detail the importance of carrying out such reform.

It is also essential to increase fiscal revenue. During the campaign for the recent House of Councillors election, Prime Minister Shinzo Abe said there would be no need to raise the consumption tax rate over a period of about 10 years after it is raised to 10 percent in October. But optimism should be restrained amid the prevailing forecast of fiscal deficits. It will be unavoidable to discuss raising the consumption tax rate after it is increased to 10 percent.

The government has pushed back the target fiscal year for achieving a primary balance surplus three times already. If the goal set for fiscal 2025 cannot be attained, the people’s anxiety about the future will further increase. Now is the time for the government, which is based on a stable political foundation, to tackle fiscal reconstruction in earnest.

(From The Yomiuri Shimbun, Aug. 1, 2019)Speech



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