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Saturday, Jan. 22, 2011

Government budget woes grow worse

Primary balance deficit for 2020 is projected to jump ¥1.5 trillion

Staff writer

An official prediction released Friday points to harder fiscal challenges ahead, with the combined primary budget balance deficit of the central and local governments predicted to grow to ¥23.2 trillion in fiscal 2020, ¥1.5 trillion more than was estimated in June.

Prime Minister Naoto Kan's administration is aiming to achieve a primary balance surplus by the end of fiscal 2020. If the government is to meet that goal by raising the consumption tax, the unpopular levy would have to be raised to more than 14 percent from the current 5 percent.

The primary budget balance is a key indicator of fiscal conditions and refers to the gap between revenue excluding government bond sales and spending excluding debt-servicing costs for the year.

A surplus means the government is able to finance policy-related expenditures with that year's tax revenue, and a deficit means government debt and the burden on future generations will be worse.

Kan's Cabinet plans to come up with a concrete plan on social and tax reforms by June as the rapidly aging society is due to suck up more government spending on social security costs. A rise in the consumption tax is considered a probable option to help make up the funding gap.

Friday's estimate was based on a "conservative scenario" assuming annual nominal economic growth of around 1.5 percent until fiscal 2020.

Under the scenario, the primary balance deficit in fiscal 2011 is projected to amount to ¥27.1 trillion, equivalent to 5.6 percent of gross domestic product for the year.

In fiscal 2010, the annual deficit was ¥30.9 trillion, or 6.5 percent of GDP.

The Cabinet Office predicted the ratio will fall to 4.2 percent in fiscal 2020.

During the Upper House election in July, Kan advocated a sales tax hike to offset the accumulated debts. The ratio of outstanding debts to GDP stood at 173 percent in fiscal 2010, the highest among developed countries.

The Cabinet Office predicts the debt-to-GDP ratio will keep increasing to 221.9 percent by fiscal 2020.

While some Democratic Party of Japan members are reluctant to raise the consumption tax, fearing a voter backlash in local elections in April, newly appointed economic and fiscal policy state minister Kaoru Yosano stressed Friday the importance of boosting revenue from taxes to ward off the looming fiscal crisis.

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The Japan Times

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