Japan considered unlikely to meet fiscal consolidation target despite tax hike

The government is unlikely to meet its budget consolidation target, even with the consumption tax rate hike from 8% to 10% on Tuesday.

The tax increase will help the government’s general account tax revenue reach a record 62.5 trillion yen in fiscal 2019. But at the same time, its general account spending is expected to reach 101.5 trillion yen for the year ending next March due to growth. in social security and defense spending.

As the government must continue to rely on the debt problems to cover the ever increasing costs of dealing with the rapidly aging Japanese society, it cannot meet its goal of turning the so-called primary balance into black at the same time. during fiscal year 2025, even with the consumption tax of 10%. , the largest source of income, and annual economic growth of at least 3% in nominal terms, according to a Cabinet Office estimate.

A primary balance deficit means that a country cannot finance its annual government budget without issuing new bonds, even excluding debt service costs.

The latest consumption tax hike, which is expected to increase tax revenue by around 5.7 trillion yen per year, is not enough if the government is to achieve not only a primary balance surplus, but also a system stable social security, some experts said.

But Prime Minister Shinzo Abe had already said in July that a further tax rate hike “will be unnecessary over the next 10 years”, preventing the government’s Tax Commission from proposing further increases in its mid-year report. – course published in September.

Spending on social security benefits is expected to increase from about 121 trillion yen in fiscal 2018 to 140 trillion yen in fiscal 2025, and to about 190 trillion yen in fiscal year 2018. in fiscal year 2040. The country’s baby boomers will turn 75 in fiscal year 2025.

“The consumption tax hike this time was like a drop in the ocean,” a senior labor ministry official said. “We need to chart a course for reform beyond raising taxes.”

In September, the Abe administration launched a new panel on social security reform. However, it remains to be seen whether the administration will venture into the thorny issue of “painful” budget cuts.

“We are not at all planning to cut social security spending just from a fiscal point of view,” said Minister of Economic Revitalization Yasutoshi Nishimura.

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