Draft of Basic Economic, Fiscal Policy: Govt Must Recognize Significance of Fiscal Consolidation Issue

With social security costs rising and the national security environment becoming more severe, how will the government manage its fiscal policy? It is important for the government to draw up a medium- to long-term road map for fiscal rehabilitation and make more room for fiscal spending.

The government has compiled a draft of its “Basic Policy on Economic and Fiscal Management and Reform” for fiscal 2024. It is aiming for a Cabinet decision by the end of June.

For about the past 20 years, the government has positioned the goal of achieving a surplus in the combined primary balance of the central and local governments as a pillar of its fiscal consolidation plan.

The primary balance is an indicator of the amount of policy spending that can be covered through tax revenues and other means, without relying on debt.

The government has set a target of “achieving a surplus in fiscal 2025.” But in consideration of the ruling Liberal Democratic Party lawmakers who support an aggressive fiscal policy, the target fiscal year for achieving this goal had not been specified in the basic economic and fiscal policy in the past two years. This time, for the first time in three years, the target year of fiscal 2025 was clearly stated.

The outstanding balance of national debt, including government bonds, has climbed to about ¥1.3 quadrillion, the worst level among major industrialized countries. Considering the growing need to return to normalcy after the expenditure structure ballooned due to the coronavirus pandemic, it is quite natural that the target fiscal year was specified.

The government should refrain from pork-barrel spending that has little policy effect and steadily achieve the target.

The Bank of Japan has changed its large-scale monetary easing, and a “world with interest rates” has arrived. Since interest payments on government bonds are expected to increase in the future, restoring fiscal discipline will be essential.

The draft includes a plan to reinvigorate economic and fiscal conditions covering the six-year period from fiscal 2025 to fiscal 2030. The government intends to make efforts to achieve a surplus in the primary balance in fiscal 2025 and beyond.

The draft also states that the government aims to steadily lower outstanding debt as a percentage of gross domestic product.

However, it sets no numerical targets and lacks other specifics. It is hoped that the government will consider formulating a debt management plan with numerical targets.

Besides, even if the primary balance surplus can be achieved, it is only a step toward reducing debt. It is increasingly important to reduce government debt over the medium to long term and create more room for fiscal spending in preparation for such events as a major natural disaster or a global economic crisis.

In addition, even under normal circumstances, an increase in the burden of social security costs is inevitable due to the accelerating population decline and aging of the population. Much spending is also expected for defense expenditures in response to the worsening security environment and for costs related to the declining birth rate.

If the deterioration of fiscal conditions is left unattended, not only will public anxiety about the future increase, but consumption will also be adversely affected, and economic growth will become difficult.

Improving fiscal soundness is not a mere slogan. The government should be fully aware of the gravity of the task.

(From The Yomiuri Shimbun, June 13, 2024)