Japan has extended the deadline for reaching primary budget surplus by two years to fiscal 2027. The local government highlights the difficulties in restoring fiscal stability as island spending rises, planning to present its forecasts within the economic policy council later this month. This will provide a basis for a new fiscal reform plan to be drafted by the government this summer.
The market participants pay particular attention to the new deadline that the government will set for balancing the budget. The fiscal reform is an urgent matter for the Japanese government, which has the largest debt in the industrial world, more than double of its GDP.
Analysts say, however, that the Prime Minister Shinzo Abe has pushed the fiscal reform behind, as the economy is recovering and tax revenues are rising.
The previous two-year government forecasts in July showed that the budget balance, which excludes debt service and new bond sales, will change in surplus in the fiscal year ending in March 2026. The initial target was to achieve a surplus of the fiscal year 2020. But the ruling Liberal Democratic Party of Abe missed this deadline on its platform before the October elections last year and turned the cost of education into the base of its campaign.
Abe expressed a desire to achieve a primary budget surplus as early as possible. But the prime minister still hesitates to set a mandatory spending ceiling as it focuses more on growth than on austerity to revive the economy and restore fiscal stability.
Some analysts are skeptical about the goal of balancing the budget. In recent years, budgeting has relied on high growth and rising tax revenues while ensuring full spending.
The government of Abe last month raised a budget of 97.7 trillion JPY (875 billion USD), which is a record peak for the past six years, with the cost of social assistance being higher because of the aging population and the cost of servicing the massive debt burden that weighs on public finances.