Japan’s Goal is to Reach Fiscal Reform in 2020 Through Growth

Japan plans to achieve its key fiscal reform goal in fiscal 2020 through robust economic growth, and without raising the consumption tax to above 10 percent, a government panel said Tuesday.

The government is expected to set a medium-term target to slash its primary balance deficit to around 6 trillion yen ($50 billion) in fiscal 2018 — and into a surplus by fiscal 2020.

“There will be no fiscal soundness without an economic revitalization,” Prime Minister Shinzo Abe told a meeting of the Council on Economic and Fiscal Policy on Tuesday, underlining his intention to prioritize economic growth.

But the goal will be difficult to achieve as it is based on a sharp increase in tax revenue derived from robust economic growth. No specific amount is shown for reduced government spending.

At the meeting, the government started discussing formulating a plan this summer to turn the country’s primary balance — the difference between tax revenue and government spending on everything except interest on debt — into a surplus by fiscal 2020.

Abe also instructed his government to draw up by June 30 a medium to long-term fiscal policy blueprint to be reflected in compiling the budget for fiscal 2016.

The medium-term targets are expected to entail reductions in the primary balance deficit from 12 trillion yen projected by the government in February for fiscal 2018, despite swelling social security costs for Japan’s aging population.

Japan’s fiscal health is the worst among major developed economies, with public debt at more than 200 percent of nominal gross domestic product.

via Mainichi

Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza