TOKYO (Reuters) - Japan’s government could debate after April revising its target of eliminating the primary budget deficit by 2021, two government sources said, as infrastructure spending and a delay in the sales tax hike make wiping out the deficit unlikely.
Prime Minister Shinzo Abe’s government inherited a plan to achieve a budget surplus, excluding interest payments on debt, in the fiscal year to March 2021 to show Japan is trying to lower its debt burden - the worst in the world at more than twice the size of its economy.
Doubts about meeting the target grew last year when Abe signaled he would shift priority to infrastructure spending to shield Japan from risks posed by an uncertain global economy.
Since then, there has been widening concern that Abe will eventually have to give up his ambitious fiscal discipline targets as some members of his government push for more spending to prop up domestic demand.
“At some point I want to examine all our fiscal discipline targets, including the goal of returning to a primary budget surplus in fiscal 2020,” said one person close to the prime minister’s office.
In 2016, Abe laid out plans to increase spending on infrastructure to promote agriculture exports and accommodate a record number of tourists visiting Japan.
Abe’s spending push coincided with a global recognition last year that policymakers had been relying too much on monetary policy and needed to use fiscal policy more to manage their economies.
His plan will contribute to growth, but it will also place additional pressure on public finances already stretched by rising healthcare costs, debt servicing costs and a growing defense budget, economists say.
Abe has already delayed a much-anticipated sales tax hike by more than two years, which has made it impossible to meet an interim target of lowering the primary budget deficit to 1 percent of gross domestic product in fiscal 2018, government sources say.
The government will likely have to admit this publicly when it updates its long-term fiscal discipline outlook at the end of January, the sources say.
The matter has not been fully decided and there are some in the government who do not want to admit that the fiscal 2018 target is out of reach.
Abe’s cabinet also plans to reaffirm its commitment to returning to a primary surplus in fiscal 2020 at the start of the regular session of parliament on Jan. 20, the sources say.
However, another person says there is a growing recognition that Abe cannot pursue infrastructure spending and fiscal discipline simultaneously.
“Achieving a primary budget surplus in fiscal 2020 is not that realistic, so there is debate about revising this target” this person said. “There’s nothing strange about that.”
Reporting by Izumi Nakagawa; Writing by Stanley White; Editing by Richard Borsuk