Japan budget surplus forecast delayed as fiscal reforms struggle

Japan has pushed back its budget surplus forecast twelve months. (Reuters)
Updated 31 July 2019

Japan budget surplus forecast delayed as fiscal reforms struggle

  • Tokyo vows to balance budget by fiscal year 2025/26

TOKYO: Japan pushed back projections on Wednesday for bringing its budget into surplus, in a sign Prime Minister Shinzo Abe’s government is struggling to rein in massive public debt as the economy comes under increasing pressure.

The government pushed back its forecast of achieving a surplus by one year to 2027, citing a downward revision to its outlook for gross domestic product (GDP) growth, inflation and tax revenue since projections in January.

In its twice-yearly fiscal and economic projections, the government expected the primary budget, excluding new bond sales and debt servicing, to swing to a surplus of 0.2 percent of GDP in 2027.

In its January estimate, the government expected the primary budget balance to swing to a 0.1 percent surplus of gross domestic product in fiscal 2026.

Japan’s debt burden is the industrial world’s heaviest, at more than twice the size of its $5 trillion economy. Abe has put greater importance on growth to safeguard the fragile economy than fiscal reform.

Domestic demand has helped offset weaker exports this year, but a planned sales tax hike in October to 10 percent from 8 percent could curb consumer spending.

Abe voiced his readiness to boost fiscal spending if the tax increase hurts consumption.

“As we aim to achieve our fiscal reform target, we’ll do the utmost to steer economic and fiscal policy appropriately and flexibly,” Abe told government’s top economic council.

“We will respond as appropriate while watching to see any swings in demand after the tax hike, and the most up-to-date economic situation.”

Weak external demand forced the government to lower economic growth forecasts from the January estimate. It now expects real and nominal GDP growth at 2 percent and above 3 percent, respectively, from fiscal 2023, which many private-sector economists see as rosy.

On Monday, the government cut its fiscal 2019 real GDP growth forecast to 0.9 percent from 1.3 percent. In Wednesday’s report, inflation was not forecast to reach 2 percent until 2024, a further setback for the government and the central bank’s aim of meeting the inflation target.

Based on the government’s more conservative :baseline scenario” in which real GDP growth is estimated to hover around 1 percent in the coming years, the primary budget was seen as being in the red through the forecast period to 2028.

A primary budget surplus was originally targeted for 2020, but it has repeatedly been pushed back due to a bulging cost of welfare to support the aging population and fiscal stimulus to pull Japan out of two decades of deflation and stagnation.

The government has now pledged to balance a primary budget by the fiscal year end to March 2026.

This fiscal year’s budget spending reached a record 101.5 trillion yen ($935.05 billion) including 2 trillion yen in steps to ease a pain from a planned sales tax.

Next fiscal year’s budget is also expected to exceed 100 trillion yen for a second straight year, highlighting the difficulty in curbing fiscal spending. It features 4.4 trillion yen in spending for measures to promote Abe’s growth strategy.


US workers face an unequal future when virus recedes

Updated 01 June 2020

US workers face an unequal future when virus recedes

  • Unemployment is now at a level not seen in since the Great Depression nearly a century ago

WASHINGTON: As the coronavirus worked its way across the US, it cleaved the country’s workforce in two: Those who have the ability to work from home, and those who do not.

From baristas to hotel workers to tourism operators, people whose job requires them to show up in-person were among the hardest hit in the waves of layoffs, and also those on the low end of the US pay scale.

Unemployment is now at a level not seen in since the Great Depression nearly a century ago, and moving higher, while the coronavirus is expected to threaten the country for months to come, factors analysts fear will only serve to deepen inequality for workers in the world’s largest economy.

“People who are well-off and highly skilled and work from home are going to demand that their employers make accommodations for them,” said Jesse Rothstein, a former chief economist at the Labor Department who now teaches at the University of California, Berkeley. But “lower skilled workers ... are taking on more risk without more pay.”

Federal Reserve Chair Jerome Powell has described the pandemic as “a great increaser of inequality,” but experts say that is not inevitable, particularly if Congress passes new stimulus measures to support battered businesses and consumers.

“Every single cleavage we had before is widening,” said Claudia Sahm, a former principal economist with the Federal Reserve who is now with the Washington Center for Economic Growth.

“We have an opportunity to do something better than what we were doing before, but it will not just happen. It has to be a policy effort.”

When the coronavirus arrived, the US economy had a tight labor market, with an unemployment rate near a historic low of 3.5 percent in February, while long-stagnant wages were just starting to rise. Yet the job market was not as healthy as it appeared.

The US Private Sector Job Quality Index (JQI) — which uses government employment statistics to gauge the balance between non-supervisory jobs with decent pay and those without — has been charting downwards for years.

In February, the JQI was back near its all-time low reached in March 2012 as many of the jobs being created paid below the mean weekly wage, according to the index compiled by a consortium of academics and researchers.

And a study late last year from the Brookings Institution found 44 percent of US workers qualify as “low wage,” with median annual earnings of just $18,000 a year.

When the pandemic hit and sent the unemployment rate to 14.7 in April and the economy into an almost-certain recession, low-paid workers in industries like leisure, hospitality and food services were laid off in such large numbers their absence skewed average wages upwards.

While government data show most consider their layoffs to be temporary, Michael Weber, an associate professor at the University of Chicago Booth School of Business, warned that if businesses close or scale back staffing, job seekers will be forced to compete against each other, driving wages lower, as is typical in recession job markets.

Grocery store chain Kroger, e-commerce giant Amazon and several fast food companies have announced massive hirings since the pandemic hit, but offer no safe haven.

“Those are the very jobs that are under criticism over the last few years given that they pay unreasonably low wages,” Weber said. And those type of jobs “come hand-in-hand with a more precarious income situation.”

Robert Hockett, a law professor at Cornell University who is a principal researcher on the JQI, said job seekers could demand risk premiums at workplaces where they face exposure to the coronavirus, or take equity stakes in struggling companies to help keep them afloat.

The Fed reported this week that Boston area employers were giving workers temporary pay increases of up to 30 percent, in part to compensate for the increased risk and hold onto their employees.

But unemployed workers could end up forced to accept whatever jobs they can find, particularly if Congress fails to extend the small business loans and unemployment benefits temporarily expanded in the $2.2 trillion CARES Act approved in March.

“We’re kind of on a tightrope or a knife’s edge at this moment,” Hockett said in an interview.

President Donald Trump’s administration has been lukewarm toward further spending on aid for workers, predicting the coronavirus will be defeated and a strong economic rebound starting in July, even as many economists remain skeptical of a rapid, V-shaped recovery.

“It’s all going to ride on how desperate workers are,” Hockett said, “And that’s going to ride on public policy positions.”