TOKYO (Kyodo) -- Japan may achieve fiscal consolidation one year earlier than previously expected, due to increased tax revenue and efforts to subdue rising social security costs, the government said Wednesday.
According to its latest longer-term projections, the country will continue to run a deficit in the primary balance -- tax revenue minus spending except to pay interest on past debt -- until at least fiscal 2025.
It is an improvement from July, when it said it would be in the red until at least fiscal 2026 without further steps to improve its finances.
But the latest forecast, which assumes Japan's economic growth will accelerate to a real 2 percent over the next five years, is likely to draw criticism of being overly optimistic, especially given risks abroad including the trade friction between the United States and China.
It also means the government is still not on track to achieve its target of running a primary surplus by fiscal 2025, a goal that itself has already been pushed back by five years.
With the worst fiscal health among industrialized nations, Japan is trying to keep a check on spending on social security such as pensions and health care that has swelled as the population rapidly grows old.
Social security costs led the state budget plan for the year beginning in April to climb to a record 101.46 trillion yen ($928 billion).
Prime Minister Shinzo Abe has said he will raise the nationwide consumption tax from October to boost revenue, but the move will temporarily hurt the government's bottom line because it necessitates a massive stimulus package to prevent demand from plummeting.
The projections, released by the Cabinet Office following a meeting of the Council on Economic and Fiscal Policy, meanwhile show inflation not reaching the Bank of Japan's 2 percent target until at least fiscal 2022, one year later than the July forecast.
The delay in lifting core consumer prices, which exclude volatile fresh food items, suggests the central bank will keep interest rates at their current ultralow levels until fiscal 2021, the office said.