Primary Balance: Don’t Casually Extend Deadline for Achieving Target

Editorial

14:59 JST, January 20, 2025

To increase Japan’s national strength, both economic growth and fiscal soundness must be achieved in a balanced manner. The central government needs to formulate a credible target for fiscal reconstruction.

The government has released its estimate that the primary balance of the central and local governments will remain in deficit in fiscal 2025. Since 2018, the government has aimed to achieve a surplus in the fiscal 2025 primary balance, but the latest estimate means this target will now be postponed.

Such a situation will reduce confidence in Japan’s fiscal management, and the government must take this seriously. The government has announced that it expects to achieve a surplus in the primary balance in fiscal 2026. However, whether this can be achieved is uncertain because the government is not taking into account the fact that supplementary budgets have become a regular occurrence.

The primary balance is an indicator that shows how much of the money spent on policy matters is covered by such funds as tax revenue, without relying on debt.

The national debt, including government bonds, has ballooned to about ¥1.3 quadrillion, the worst level among major advanced countries. To reduce the huge debt over time, it is essential to first achieve a surplus in the primary balance.

In estimates made last July, the government had predicted it would achieve a surplus of ¥800 billion in fiscal 2025, based on expectations of high growth in tax revenue. However, the government said it is now expecting to end up with a deficit of ¥4.5 trillion.

The reason for the revised figure is that the supplementary budget for fiscal 2024 stood at ¥13.9 trillion, larger than that of fiscal 2023, and some items in the budget will be carried over into fiscal 2025.

Spending continued to increase due to the COVID-19 pandemic, but it is a fact that the government decided on a policy in June 2023 to “work to return the expenditure structure to normal.” The administration of Prime Minister Shigeru Ishiba must be criticized for only deciding in advance the scale of its expenditures and increasing spending without a clear vision, thereby pushing the goal further away.

The primary balance has been regarded as the biggest fiscal reconstruction target since then Prime Minister Junichiro Koizumi’s administration set the goal in 2002 of achieving a surplus in the early 2010s. However, the target year for meeting this has been repeatedly moved back, and Japan has never achieved a surplus.

The importance of fiscal soundness is increasing further as Japan seeks to boost its national strength.

To win in international competition, it is becoming increasingly important for the government to invest in strategic fields such as decarbonization and semiconductors. Regarding measures to counter the low birth rate, it is also necessary to improve social security and dispel concerns about the future.

In addition, it is desirable to increase the fiscal leeway to be able to respond to unforeseen circumstances, such as large-scale natural disasters and global economic crises.

If the Bank of Japan keeps raising its policy interest rate, the interest payments on government bonds will also increase. The buck should not be passed to the future generations, including today’s young people.

The government should widely convey the need for fiscal soundness to the public.

(From The Yomiuri Shimbun, Jan. 20, 2025)