Candidates to lead Japan say fiscal reconstruction target may have to be postponed

All four candidates in the Liberal Democratic Party’s presidential election said the government’s fiscal reconstruction goal may have to be delayed to prioritize resuscitating an economy ravaged by the pandemic.

During a debate Saturday, each candidate in the race, which will effectively decide who will replace Prime Minister Yoshihide Suga as the country’s leader, made their stance clear on the target to achieve a primary balance surplus by fiscal 2025.

The primary balance target, in which the government can fully cover its expenditures excluding debt-servicing costs with its own tax revenues, has become one of the hot economic issues in the campaign that kicked off Friday.

Sanae Takaichi, a former internal affairs minister, has brought the topic on the table, as she has said she plans to freeze the goal until the country’s inflation rate reaches its 2% target. Takaichi is advocating for an increase in fiscal spending to make “bold investments” to bolster Japan’s growth and improve crisis management. To do so, Japan needs to free itself from fiscal restraint, she said.

During the debate, which was streamed online, the three other candidates were asked about their take on the fiscal reconstruction target and each said it’s not a priority for now.

“I think we have no choice but to delay the primary balance target” until the economy is out of the woods, said Taro Kono, the minister in charge of the vaccination drive. Kono added that the economy needs to be sustained by both monetary easing and fiscal spending.

It’s widely recognized that it’s highly unlikely that Japan will be able to achieve the primary balance goal.

In July, the government released simulations showing the target would be unachievable until fiscal 2027 even under the assumption that the country’s economy grows at a faster pace than usual. The government has maintained the target in an apparent effort to express its commitment to improve the country’s fiscal health, which is the worst among the Group of Seven industrialized nations.

Another candidate, Seiko Noda, the deputy secretary-general of the LDP, said maintaining fiscal discipline is a basic principle, “but we are currently facing an emergency … if we don’t spend now, the bottom would fall out, so we have to” deprioritize the target.

As more immediate issues, Noda stressed the importance of investing in children while stimulating subdued consumption among older people due to the pandemic.

Former Foreign Minister Fumio Kishida said Japan will not “haul down the flag of fiscal reconstruction” but must not make a mistake about the order of its priorities.

He said the first thing is to get the economy back up and running and then create a healthy cycle of growth and redistribute the wealth gained as a result. Once that happens, the government will be able to focus on fiscal reconstruction, he said.

“I will consider postponing the primary balance goal if necessary,” Kishida said.