Exclusive:Japan government forecasts show Abe missing budget-balance promise

Fri Jan 24, 2014 6:24am EST
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By Takaya Yamaguchi

TOKYO (Reuters) - Japanese government calculations indicate that Prime Minister Shinzo Abe cannot meet his budget-balancing promise in coming years on the current course, suggesting he may come under greater pressure from fiscal hawks for future tax increases.

Forecasts by the Finance Ministry, reviewed by Reuters on Friday, show that even in the rosiest of four scenarios, the government will run a primary budget deficit - which excludes debt service and income from debt sales - for the fiscal year to March 2021.

Under existing policy, Abe's government has promised to halve the primary deficit by fiscal 2014/15 and bring it into balance five years later. Finance Minister Taro Aso reaffirmed that goal on Friday at the opening of Parliament.

Private economists have long considered the government's fiscal-reform goals to be ambitious, but the new forecasts represent the first time that official figures have essentially confirmed that view.

"Abe will either have to get serious about spending cuts or raise taxes more than originally planned," Norio Miyagawa, senior economist at Mizuho Securities Research & Consulting Co, said of the new ministry forecasts.

"However, there's reason to be concerned because Abe's comments suggest that as long as higher economic growth pushes up tax revenue he would like to avoid the unpopular option of raising taxes."

Ministry officials had no comment on the scenarios, which have not been made public.

Fiscal reform is an urgent task for the world's third-biggest economy. Years of recessions and tepid growth have crimped tax revenues, while massive government stimulus measures and a rapidly ageing society have forced up government spending.   Continued...

Japan's Prime Minister Shinzo Abe makes a policy speech during the start of an ordinary session at the lower house of the parliament in Tokyo January 24, 2014. REUTERS/Yuya Shino