New Plan for Fiscal Soundness

The Cabinet Office is accelerating its effort to issue the Basic Policy on Economic and Fiscal Management and Reform 2024, which is supposed to be released within this month. Prime Minister, Fumio Kishida, announced that the government would formulate a new plan for economic and fiscal policy between 2025 and 2030. Although it is doubted that the government can implement its goal to achieve a surplus in primary budget balance in 2025, it is going to maintain the goal.

In the discussion of the Council on Economic and Fiscal Policy on June 4th, Kishida appealed his intention to have the new plan to achieve stable real growth of 1% and fiscal soundness at the same time. The plan will succeed the current plan to turn the budget of Japan into the black in 2025. The new plan will be included in the annual basic policy, which will be concluded later this month.

 

Some members of the council have been arguing the necessity to have another plan for fiscal policy even after the government would be able to achieve the goal of primary budget balance. The estimation of growth is supposed to be set at 1.0% during those six years. The estimation is lower than the goals they have been upholding, which were 3% in the nominal growth and 2% in the real.

 

It is expected that the basic policy 2024 will include promotion of wage hike and adding cost on price to achieve positive cycle for wage hike overriding price hike. Although it is designed to get rid of deflation, Kishida is supposed not to declare the exit of deflation so soon. Getting rid of deflation has been a slogan of former Premier Shinzo Abe who believed that printing bills would contribute growth. Kishida insists on succeeding Abe’s policy to maintain the support from the lawmakers having been close to Abe.

 

Some old colleagues of Abe in the Liberal Democratic Party still demand active mobilization of fiscal policy with massive issuance of Japanese government bond. The Headquarters for Considering Fiscal Policy in LDP, headed by an Abe’s ally Shoji Nishida, requested the government not to insist on the black of budget balance.

 

Meanwhile, the Headquarters for Promoting Fiscal Soundness in LDP made a proposal that warned optimistic fiscal policy, considering monetary policy of the Bank of Japan shifting to raising interest. The greatest concern on the massive amount of JGB is increasing the payment for the interest of JGB.

 

The Fiscal System Council, a consultation body in Ministry of Finance, released its proposition for budget formulation on FY 2024 last month, which required establishment of sustainable fiscal structure. “Reinforcing of fiscal structure is an urgent need in the time when decline of birth rate is ongoing, ‘the world with interest’ has come and preserving potentiality for unexpected natural disaster is necessary,” says the proposition. But Kishida administration has not announced effective way to formulate a budget independent from JGB.

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