Japan set to halve its budget deficit

The estimate by the Cabinet Office underscores the need for Prime Minister Shinzo Abe to strike a balance between boosting growth and reining in the industrial world’s heaviest public-debt burden, which is more than twice the size of the economy.

The projection, shown to the government’s top economic and fiscal policy panel, puts Japan’s primary budget – excluding new bond sales and debt servicing – at a deficit of 3.2 per cent of gross domestic product in the fiscal year to March 2016.

The ratio was 0.1 per cent lower than the previous estimate made in August due to higher tax income on the back of the economic recovery. It compared with 6.6 per cent seen in fiscal 2010/11, suggesting the government is on track to meet its goal of halving the budget deficit between 2010/11 and 2015/16.

However, the estimate still puts Japan’s primary budget deficit at 1.9 per cent in the fiscal year to March 2021, compared with 2.0 percent projected last summer.

That means Japan would miss its goal of achieving a primary budget surplus in fiscal 2020/21 without further tax increase and spending cuts. The outstanding public debt, excluding post-2011 earthquake reconstruction bond issuance, is estimated at 185.2 per cent of GDP in the fiscal year to March 2021.

The estimate assumes real economic growth of 2 per cent.