April 12, 2018 / 4:35 AM / 4 months ago

Japan government eyes new budget-balancing goal around mid-2020s: sources

TOKYO (Reuters) - Japan’s government is considering setting a new balanced budget target for around the mid-2020s after pushing back the original, sources with knowledge of the matter told Reuters on Thursday.

Cranes are seen at a construction site in Tokyo, Japan March 13, 2018. REUTERS/Toru Hanai

A final decision has yet to be made due to disagreements over how much social welfare should be curbed and concerns that spending cuts could derail the country’s economic recovery, according to the sources, who spoke on condition of anonymity as they are not authorized to speak to media.

The government’s original goal was to achieve a surplus in fiscal 2020. But Prime Minister Shinzo Abe shelved that deadline last year when he called a snap election with a pledge to revamp social welfare system for all generations.

The government will decide a new deadline in June for balancing the primary budget — which excludes debt servicing and new bond sales — with a timeframe sometime between fiscal 2023 and 2026.

“We should aim for a budget surplus in the mid-2020s,” a private-sector adviser on the government’s top economic council said.

“We are arranging to make it happen somewhere between the fiscal year 2023 and 2026,” said a senior government source.

Japan’s biggest business lobby Keidanren on Thursday also proposed achieving a budget surplus in the middle of the 2020s, while easing the current aim of capping the annual increase in welfare spending at 500 billion yen ($4.68 billion).

“Excessive fiscal tightening could weigh on the economy and undermine efforts to defeat deflation and revive the economy,” Keidanren said in its proposal.

It also urged the government to proceed with a planned sales tax hike to 10 percent from the current 8 percent in October 2019, and consider a further hike as a “leading option” in future to ensure funding of social security.

Projections by the Cabinet Office showed in January that a primary budget surplus will be met in the 2027 fiscal year, meaning that spending reform would be needed to bring forward the target, the sources said.

That depends on how the government proceeds with painful reforms on welfare spending in the face of the need to respond to a rapidly aging population, highlighting the difficulty of restoring fiscal health as spending grows.

Investors are closely watching the government’s plans to balance the budget as Japan is already saddled with the industrial world’s heaviest public debt that is more than twice the size of its economy.

However, analysts say Abe’s government has put fiscal reform on the back burner as he focuses more on growth than austerity to revive the economy and restore public finances.

Reporting by Izumi Nakagawa and Tetsushi Kajimoto; Editing by Kim Coghill

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