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Sizable spending cut necessary to achieve primary balance surplus+
[March 26, 2006]

Sizable spending cut necessary to achieve primary balance surplus+

(Japan Economic Newswire Via Thomson Dialog NewsEdge)TOKYO, March 26_(Kyodo) _ A Fiscal System Council estimate has shown that Japan would have to cut general-account expenditures by 26.9 trillion yen from the current level in order to achieve a stable primary balance surplus in fiscal 2015 without raising taxes, sources familiar with the estimate said Sunday.

The cut translates into a uniform 32 percent reduction in all spending categories excluding debt-servicing costs, said the sources.

Such a reduction would result in medical fees shouldered by patients jumping 2.5 times from the current level and the starting age for receiving the public pension becoming 71 instead of 65 at present, said the sources.

The estimate apparently reflects the council's view that the government needs to raise taxes to help rebuild Japan's state coffers without affecting the nation's social security and other social systems.

The council, an advisory body to the finance minister, plans to formalize the estimate Monday and present it to the government's Economic and Fiscal Policy Council on Wednesday, the sources said.

Under the estimate, Japan's policy-related general-account spending will swell to 87.9 trillion yen in fiscal 2015 while tax revenues will total only 71 trillion yen without tax raises. This would result in the primary balance deficit rising from 11.2 trillion yen in fiscal 2006 to 16.9 trillion yen in fiscal 2015.

The spending cut of 26.9 trillion yen would become necessary in order for the primary balance -- tax revenues minus outlays other than debt-servicing costs -- to achieve a surplus equal to 1.5 percent of the nation's gross domestic product, said the sources.

The estimate is based on the assumption that Japan's real economy will grow by 3 percent while its long-term interest rates will hover at around 4 percent, according to the sources.

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