(Bloomberg) — Japan’s new prime minister needs to set a fresh fiscal consolidation target once the nation balances its budget, according to government adviser Takero Doi.
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As an option, the government might consider setting a budget surplus-to-gross domestic product target to ensure that the nation stays in the black, according to Doi, an economics professor at Keio University and a member of an advisory panel to the Finance Ministry. Such a goal would help bring down Japan’s public debt-to-GDP ratio, he said in an interview last week.
The primary balance, the difference between government revenue and expenditure excluding net interest payments on debt, is projected to turn positive in the year starting in fiscal 2025 after multiple delays, according to the Cabinet Office.
“Going forward, the focus should be on what to do after hitting the primary balance target,” Doi said.
Japan’s ruling Liberal Democratic Party is set to select a new leader on Sept. 27. The winner of a crowded race with about 10 potential candidates is almost certain to become the new prime minister due to the party’s dominance in parliament.
The new leader can’t afford to be indifferent to a debt burden that is more than twice the size of Japan’s GDP and the highest among major economies, Doi said.
“If the premier spends a lot and creates a huge amount of debt now, that will narrow the scope of policy options for another leader in five or 10 years,” Doi said.
As public debt payments are expected to rise with the central bank raising interest rates gradually, excessive reliance on debt may constrain the degree of policy freedom in the future.
Interest expenses on government bonds in fiscal 2027 are expected to reach ¥15.3 trillion ($105 billion), up about 60% from the current fiscal year, according to the Finance Ministry.
–With assistance from Yoshiaki Nohara.
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