Japan tries to solve tax revenue shortfall with $20.25 billion bond issue

Japan’s government will issue an extra 2.2 trillion yen ($20.25 billion) of deficit-financing bonds to make up for a tax revenue shortfall, Finance Minister Taro Aso said, after the cabinet approved on Friday a supplementary budget for the fiscal year to March.

The extra budget will be compiled along with an annual budget for the year starting in April 2020 and sent to parliament for approval early next year.

This is the first time the government has resorted to issuing extra deficit financing bonds since 2016, showing how Prime Minister Shinzo Abe is struggling to balance the budget, a target he has already pushed back by five years to March 2026.

The government’s difficulties raising revenue and trimming debt issuance will further cloud the outlook for the “Abenomics” stimulus policy mix of bold monetary easing, flexible spending and structural reform.

“We must juggle both economic revival and fiscal reform at the same time with the coming fiscal year’s budget,” Aso told reporters. “There’s no change to our goals of achieving a primary budget surplus and stably lowering the debt-to-GDP ratio.” Finance ministry officials said the government will slash the tax income estimate for the current fiscal year by 2.3 trillion yen from its initial target of 62.5 trillion as a slump in exports amid the Sino-US trade war has hit revenues.

Aside from the 2.2 trillion yen of additional deficit-covering bonds, the government will also issue additional construction bonds worth about 2.2 trillion yen to finance infrastructure spending.

The extra budget features additional fiscal spending worth about 4.5 trillion yen, the bulk of which - along with next fiscal year’s annual budget - will help fund the stimulus spending of 13.2 trillion yen the cabinet agreed last week, the officials said.

The government expects Japan’s real gross domestic product (GDP) will grow 1.4% in the fiscal year 2020/2021, taking the effects of the stimulus into account, the Nikkei newspaper said. That forecast would be much more bullish than those of private-sector economists.

The spending package is aimed at funding disaster recovery, countering downside economic risks and sustaining a fragile economy beyond the 2020 Tokyo Olympics. In addition, the government will tap 1.5 trillion yen from its fiscal investment and loan programme, taking advantage of low borrowing costs under the Bank of Japan’s negative interest rate policy. The amount of extra budget spending was much smaller than the 10 trillion yen that was first floated by ruling party lawmakers last month, highlighting the limited fiscal legroom left for policymakers.

Reuters