By Keita Nakamura,
Japan's record spending plans for fiscal 2021, approved by the Cabinet on Monday, are likely to be inflated later by a series of supplementary budgets, as with the current fiscal year, as the adverse impact of the coronavirus pandemic is almost certain to persist for some time.
Many private-sector economists have sounded the alarm over the erosion of Japan's fiscal discipline as they believe some of the economic measures drawn up by the government since the outbreak of the novel coronavirus were non-urgent despite an expected sharp fall in tax revenue.
"It's a waste of money to take consumption-stimulating steps through extra budgets at a time when we have yet to contain the virus spread," said Hideo Kumano, chief economist at the Dai-ichi Life Research Institute.
Prime Minister Yoshihide Suga's Cabinet approved last week the third extra budget for the current fiscal year through March, set to boost the country's general account expenditure to an unprecedented 175.69 trillion yen ($1.70 trillion) from the initial plan of 102.66 trillion yen. Annual new bond issuance will top 100 trillion yen, also the largest ever.
Under the idea of a "15-month budget," the extra budget, entailing actual fiscal spending of 15.43 trillion yen, was compiled together with the fiscal 2021 draft budget of 106.61 trillion yen. They will finance the government's latest 73.6 trillion yen economic package, which also got Cabinet approval early this month.
Among the stimulus measures is a five-month extension through late June of the government's controversial "Go To Travel" subsidy program, launched in July, to aid the virus-hit tourism industry, costing an additional 1.03 trillion yen.
Due to a resurgence of infections across the country since November, a government panel of medical experts repeatedly proposed a review of the campaign, but Suga was, until last week, against rolling it back.
However, after seeing falling approval rates for his Cabinet in media polls, he abruptly suspended the travel initiative throughout the country during the New Year holidays.
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As for the third extra budget, the government also included support for digital transformation and efforts to slash greenhouse gas emissions, on which Kumano cast a critical eye, claiming that they should have been provided under the main budget "because most of them take effect in the medium- to long-term period."
Koya Miyamae, a senior economist at SMBC Nikko Securities, said the government may face calls to narrow the gap between the current and next year's short-term supportive steps, which will force it to secure more huge spending in fiscal 2021.
"In that case, the goal of fiscal consolidation will likely be shelved for the time being," said Miyamae, referring to the government's target of bringing its primary balance -- tax revenue minus expenses other than debt-servicing costs -- into the black by fiscal 2025, which he says is difficult to be realized.
Miyamae believes that Japan, already mired in debt of more than 1,100 trillion yen, may be able to get down again to fiscal consolidation efforts "in fiscal 2022 or later."
According to the draft budget, Japan's primary balance in fiscal 2021 will log a 20.36 trillion yen-deficit, up 10.74 trillion yen from the previous financial year's initial plan, as tax revenue is estimated to be 57.45 trillion yen, down 6.07 trillion yen, mainly because corporate earnings have been hit hard by the fallout from the pandemic.
"Although now is not the timing for that, Suga's administration will need to draw a new road map for fiscal soundness in the event that the virus spread settles down," said Yuichi Kodama, fellow chief economist at the Meiji Yasuda Research Institute.
The tax revenue estimation is based on the government's forecast that the economy will grow a real 4.0 percent in fiscal 2021, helped by a 2.0 percent positive effect stemming from the latest stimulus, after shrinking 5.2 in the current year. The forecast and the growth shrinkage are the biggest since official data became comparable in fiscal 1995.
Kodama said the growth projection for the next fiscal year is "slightly excessive," noting that some measures are not necessarily expected to take immediate effects on the economy. He also predicts that an extra budget along with additional debt issuance will be required around the middle of 2021.
Meanwhile, if COVID-19 vaccinations become widely available to the public as the government has planned, growth of 4.0 percent is achievable, Kodama and Dai-ichi Life's Kumano said. The government aims to secure COVID-19 vaccines for all people in Japan in the first half of 2021.
"After all, there's no stimulus measure better than vaccination," Kumano said.
