Japan to Achieve Primary Budget Surplus in 2025 Amid Economic Improvements

by Pooja Chauhan · 29/07/2024

Japan is projected to achieve a primary budget surplus next year for the first time since the metric was introduced in 2002, according to a government estimate revealed on Monday. This significant milestone is attributed to improvements in the economy and strong corporate profits, which have bolstered tax revenues.

The expected surplus will enable Prime Minister Fumio Kishida’s administration to demonstrate progress in addressing Japan’s longstanding fiscal challenges. Analysts suggest that this achievement will strengthen the government’s position in managing the nation’s finances.

According to the revised estimate presented to the government’s top economic council, Japan is forecasted to achieve a primary budget surplus of 0.8 billion yen ($5.2 million) in fiscal 2025. This indicates that tax revenues will slightly exceed expenditures. This revision marks a substantial improvement from the January estimate, which projected a primary budget deficit of 1.1 trillion yen.

The primary budget balance, which excludes new bond sales and debt-servicing costs, serves as a critical measure of the government’s ability to finance policy measures without issuing additional debt. Japan has struggled with a primary budget deficit for most of the postwar era, except during the asset bubble period between 1986 and 1991, resulting in a debt pile that is twice the size of its economy.

In the annual economic and fiscal policy guidelines set in June, the government reaffirmed its commitment to achieving a primary budget surplus by the next fiscal year. This goal has gained added significance as the Bank of Japan is anticipated to raise interest rates from the current near-zero levels, which would increase the cost of servicing Japan’s substantial public debt.

Achieving a primary budget surplus will be a pivotal step for Japan in restoring fiscal stability and reducing the reliance on debt to finance government expenditures. The government’s efforts to enhance tax revenues through economic growth and corporate profitability will play a crucial role in attaining this objective.