May 28, 2018 / 11:08 AM / 7 months ago

Japan's draft budget plan targets a primary surplus in fiscal 2025

TOKYO, May 28 (Reuters) - Japanese government advisers on Monday laid out new fiscal discipline targets aimed at achieving a primary budget surplus in fiscal 2025, because the prior target of fiscal 2020 cannot be achieved.

The four advisers also opened the door to cuts in welfare spending for people 75 years of age or older, and suggested the government take some steps to smooth out disruptions expected from a nationwide sales tax hike scheduled for 2019.

It is uncertain whether Prime Minister Shinzo Abe will adopt all the advisers’ proposals. Abe has failed to meet previous fiscal discipline targets as he placed more priority on raising spending for economic stimulus, education and defence.

“The prime minister has ordered me to use these proposals for a basis for compiling the final version of the fiscal discipline plan,” Japanese Economy Minister Toshimitsu Motegi said.

“We can’t be put in a situation where the economy suddenly crashes.”

The advisers - academics and business leaders whose thinking is considered close to Abe’s on policy - submitted their draft proposal at a Council on Economic and Fiscal Policy meeting on Monday.

The government will make its final decision on the targets by the end of June.

The advisers also proposed three mid-term targets for fiscal 2021: halving the ratio of the primary budget deficit to gross domestic product, lowering the debt-to-gross domestic product ratio to 180 percent, and lowering the budget deficit-to-GDP ratio to less than 3 percent.

The primary budget balance excludes debt servicing costs and income from debt sales.

Since taking office in late 2012, Abe has made some progress in improving Japan’s fiscal position by raising tax revenue and reducing new debt issuance.

The government is scheduled to raise the nationwide sales tax to 10 percent from 8 percent in October 2019. Some of that extra revenue will be spent on welfare programmes, but some politicians worry consumer spending will weaken because of the tax hike.

Economists says these measures are not enough to control the debt burden, which is the worst in the world at more than twice the size of Japan’s economy.

Japan’s government has struggled to reduce the burden on public finances caused by a rapidly ageing population

The government will face pressure to increase spending for two of Abe’s signature policies: subsidised education and child care for low- and middle-income households. (Reporting by Stanley White; Editing by Richard Borsuk)

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