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Fiscal expansion should not be continued simply because tax revenue has increased. The government must present concrete measures to suppress inflated expenditures and reduce the national debt.
The Cabinet Office has released its mid- to long-term fiscal estimates, which are revised twice a year.
In the latest estimate, if strong economic growth continues, the primary balance of the central and local governments will be ¥1.1 trillion in the red in fiscal 2025 — a deficit ¥200 billion less than that of the July 2023 estimate — and ¥3.1 trillion in the black in fiscal 2026.
The primary balance is an indicator of how much of the government’s spending on policy implementation can be covered by tax revenue and other means without relying on debt. The government has set a goal of bringing the primary balance into the black in fiscal 2025.
The latest estimates indicate that “a primary balance surplus in fiscal 2025 is within sight” if efforts to make expenditures more efficient are continued.
Tax revenue is increasing due to rising prices and wages. However, it is difficult to say that this has been fully utilized to restore fiscal health.
Compared to the estimate in July, tax revenue has increased by ¥700 billion, but the reduction in the deficit shrank by ¥500 billion due to factors such as the supplementary budget for economic stimulus implemented last autumn.
The latest estimate did not take the compilation of future supplementary budgets into consideration. Details about improving the efficiency of expenditures are also unclear.
Large supplementary budgets have become the norm in the wake of the COVID-19 pandemic. The government announced in its “Basic Policies on Economic and Fiscal Management and Reform” in June that it will “work to return the expenditure structure to normal.”
However, the trend of compiling large supplementary budgets continued last autumn, and the size of the proposed fiscal 2024 initial budget, at ¥112 trillion, is much larger than pre-pandemic levels, although it is smaller than the previous year.
The government’s will to restore fiscal discipline to return the primary balance to the black is not being felt.
Trends in interest rates are also a cause for concern. In the budget proposal for fiscal 2024, the cost related to government bonds including interest payments totaled a record ¥27 trillion due to increasing long-term interest rates. If the Bank of Japan reviews its large-scale monetary easing policy in the future, interest rates will rise further and the interest payments will also increase.
The outstanding state debt, including government bonds, totaled ¥1.27 quadrillion at the end of fiscal 2022, more than double the gross domestic product, the worst level among developed countries. Even if a primary balance surplus is achieved, it is only a step toward reducing the debt.
With the declining birth rate and aging population, the public is becoming increasingly anxious about the future, and fiscal rehabilitation is becoming increasingly important. It is essential that the entire government shares this view once again.
