Basic Economic, Fiscal Policy Draft: Deepen Strategy to Increase Take-home Pay

Editorial

15:52 JST, June 7, 2025

It will only be possible for the government to obtain public understanding of its policy if it achieves both economic growth and fiscal consolidation. Rather than relying on tax cuts, the government should deepen its strategy to increase take-home pay by expanding the overall economic pie.

The government has compiled a draft of its Basic Policy on Economic and Fiscal Management and Reform. The target for achieving a surplus in the combined primary balance of the central and local governments has been moved back from fiscal 2025 to fiscal 2025-26.

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. Since 2002, the government has positioned the goal of achieving the primary balance surplus as a pillar of its fiscal consolidation plan.

The government has had its sights set on achieving a surplus since summer last year, following a significant increase in tax revenues resulting from higher prices and other factors. It also indicated that tax revenues for the current fiscal year are expected to exceed ¥78 trillion, the largest ever.

The current revision of the target is probably because the government set a wide range of target dates due to the uncertainty regarding the impact of the high tariff policy of the United States and other factors.

National debt, including government bonds, has reached about ¥1.3 quadrillion, the worst level among major industrialized countries. It is necessary to secure sufficient fiscal reserves to prepare for a major natural disaster or a severe recession. The timing for achieving the goal of the primary balance surplus should not be easily postponed.

To achieve both fiscal reconstruction and economic growth, the government has made the continuation of high wage increases the cornerstone of its strategy and has stated it will “firmly establish a real wage increase of about 1%” as well as a raise in nominal wages.

It is important for the government to work on measures to boost corporate productivity and encourage small and midsize enterprises to pass on increased costs through their transaction prices, thereby creating an environment conducive to higher wages.

The high tariff policy of the United States has increased uncertainty about the future of the economy. It is necessary to take measures such as promoting domestic investment, revitalizing the shipbuilding industry and supporting the strengthening of the supply chain for semiconductors.

Meanwhile, with the House of Councillors election in mind, the ruling and opposition parties are actively discussing consumption tax rate cuts.

It is legally stipulated that the consumption tax is to be used to finance social security systems, including pensions, medical care and nursing care. With the cost of these programs increasing, there is little room for tax rate cuts.

It is appropriate that the draft put a brake on arguments regarding tax cuts by stating the government will work to “ensure that take-home pay increases through higher wages” rather than a policy of tax cuts.

Paying close attention to the market must not be forgotten as an important part of fiscal management. This is because the cost of interest payments on government bonds will increase with the advent of “life with interest rates.”

In the draft, the government has come out with a policy of reducing the ratio of outstanding government debt to gross domestic product to “the level before the COVID-19 pandemic.” To ensure that the confidence of the financial markets does not waver, it is vital to clearly present a path for reducing debt over the medium to long term.

(From The Yomiuri Shimbun, June 7, 2025)