Japan is unlikely to achieve its target of budget deficit reduction in fiscal 2020, even if sales tax hikes are carried out as scheduled and the economy is on a firm growth path, an estimate released by the Cabinet Office showed Thursday.
The projection suggests that Prime Minister Shinzo Abe's government should make more efforts to improve the nation's fiscal health, the worst among developed countries, by taking steps such as drastic cuts in social security costs and further tax hikes.
Abe's administration, formed on Dec. 26, has internationally committed to halving the ratio of the primary balance deficit to Japan's gross domestic product by fiscal 2015 from the level in fiscal 2010 and turning the balance into a surplus by fiscal 2020.
A deficit in the balance means the country cannot finance government spending other than debt-servicing costs without issuing new bonds. An improvement in the balance is viewed as the critical first step toward fiscal rehabilitation.
Under an optimistic scenario in which the economy would expand by an average of 3.0 percent in nominal terms over the next decade from fiscal 2013, the primary balance deficit would be 2.0 percent in fiscal 2020, according to the estimate.
In fiscal 2015, the deficit is expected to reach 3.3 percent under the scenario, equivalent to half of the 6.6 percent in fiscal 2010, the estimate said.
But under a conservative scenario in which the economy grows by an average of 2.0 percent in the next 10 years, the primary balance deficit is likely to be 3.5 percent in the fiscal year that will start April 2015, falling short of its deficit-cut goal.
The government on Thursday approved a medium-term fiscal reform plan, pledging to narrow Japan's budget deficit by 17 trillion yen over the next two years to attain the target, with a decision yet to be made on the planned tax hike.
Legislation enacted last August stipulates the consumption tax rate is scheduled to be raised from the current 5 percent to 8 percent in April 2014 and to 10 percent in October 2015.
Abe has said he will make a final decision in the fall on whether to implement the first round of the tax hike, regarded as key to Japan's fiscal reconstruction.