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Japan brings forward fiscal surplus target, doubts remain

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Japan brings forward fiscal surplus target, doubts remain
FILE PHOTO: Businessmen walk past heavy machinery at a construction site in Tokyo's business district, Japan, January 16, 2017. REUTERS/Toru Hanai/File Photo   -   Copyright  Toru Hanai(Reuters)
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TOKYO (Reuters) – Japan brought forward its projection for achieving a primary budget surplus by one year to the 2026 fiscal year on Wednesday, due to expectations for slower growth in welfare spending and an increase in tax revenue.

Still, the latest projections are unlikely to ease concern about Japan’s large public debt burden and the growing cost of caring for its rapidly ageing society.

Japan’s debt burden is the industrial world’s heaviest, at more than twice the size of its economy, and policymakers have struggled to contain it as they spend more on welfare, healthcare, and public works.

Prime Minister Shinzo Abe’s government now expects to swing to a primary budget surplus of 0.1 percent of gross domestic product in fiscal 2026, the latest forecasts showed.

The government’s previous projection in July had the budget swinging to a primary surplus in fiscal 2027. The primary budget excludes debt servicing costs and income from bond sales.

A budget surplus was originally expected for 2020, but this target has repeatedly been pushed back as the government boosted spending on education, welfare, public works, and recovery from natural disasters.

Abe plans to raise the nationwide sales tax to 10 percent from 8 percent in October but will offer temporary subsidies for durable goods purchases and shopping vouchers to some households to limit the blow to consumer spending.

The government needs the extra revenue to pay for welfare costs, but many politicians worry the tax hike will wreck consumer sentiment.

Abe’s Cabinet will submit a record $900 billion draft budget for the next fiscal year starting in April to parliament in the coming days. The budget is expected to be passed into law unchanged. The record size of the budget has raised concern about fiscal discipline.

The government also released forecasts on Wednesday showing it expects the economy to grow 1.3 percent in fiscal 2019 starting from April after 0.9 percent growth in fiscal 2018 ending in March.

In comparison, a Reuters poll of economists showed Japan’s economy is expected to grow only 0.8 percent in fiscal 2019, which suggests the government is overly optimistic with its projections.

(Reporting by Stanley White; Editing by Sam Holmes)

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