Japan seen halving budget deficit as planned; longer-term goal still elusive

TOKYO Mon Jan 20, 2014 1:46am EST

Japan's Prime Minister Shinzo Abe delivers a speech during the ruling Liberal Democratic Party (LDP) annual convention in Tokyo January 19, 2014. REUTERS/Yuya Shino

Japan's Prime Minister Shinzo Abe delivers a speech during the ruling Liberal Democratic Party (LDP) annual convention in Tokyo January 19, 2014.

Credit: Reuters/Yuya Shino

TOKYO (Reuters) - Japan can halve its budget deficit by fiscal 2015/16 thanks to higher tax income but more effort is needed for the country to meet its longer-term goal of balancing the budget, a government estimate showed on Monday.

The estimate by the Cabinet Office underscores the need for Prime Minister Shinzo Abe to strike a balance between boosting growth and reining in the industrial world's heaviest public-debt burden, which is more than twice the size of the economy.

The projection, shown to the government's top economic and fiscal policy panel, puts Japan's primary budget - excluding new bond sales and debt servicing - at a deficit of 3.2 percent of gross domestic product in the fiscal year to March 2016.

The ratio was 0.1 percent lower than the previous estimate made in August due to higher tax income on the back of the economic recovery. It compared with 6.6 percent seen in fiscal 2010/11, suggesting the government is on track to meet its goal of halving the budget deficit between 2010/11 and 2015/16.

However, the estimate still puts Japan's primary budget deficit at 1.9 percent in the fiscal year to March 2021, compared with 2.0 percent projected last summer.

That means Japan would miss its goal of achieving a primary budget surplus in fiscal 2020/21 without further tax increase and spending cuts. The outstanding public debt, excluding post-2011 earthquake reconstruction bond issuance, is estimated at 185.2 percent of GDP in the fiscal year to March 2021.

The estimate assumes real economic growth of 2 percent and nominal growth of 3 percent on average over the next 10 years, and that the 5 percent sales tax will be doubled by October 2015 as planned.

Japan has stuck to its self-imposed goal of halving the primary budget deficit by fiscal 2015/16, and bringing it into the black in fiscal 2020/21. The government is aiming to steadily lower the debt-to-GDP ratio thereafter.

(Reporting by Tetsushi Kajimoto; Editing by Chris Gallagher)

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