TOKYO (Reuters) - Japan could achieve a primary budget surplus in fiscal 2026 assuming a rosy scenario for economic growth, the government projected on Friday, but added deficits could continue for a decade under a more modest recovery.
The twice yearly fiscal outlook highlighted the challenges for the indebted government to put its finances in order, even as higher than expected tax revenue could advance the timeframe for balancing the budget by one year versus the last forecast.
The government has set a goal of achieving a primary budget surplus by fiscal 2025, which it said could become "in sight" if policymakers continue efforts to rein in social security spending to cope with an ageing society.
Whether the government keeps or ditches this goal - excluding new bond sales and debt servicing costs - will serve as a litmus test for Prime Minister Fumio Kishida's commitment to fiscal reforms.
Its most recent reiteration of the goal included a caveat that it would be reviewed, when the revised fiscal projections are issued, to account for the fallout from the pandemic.
The fiscal review was carried out by the Council on Economic and Fiscal Policy (CEFP), the premier's top economic advisory panel.
Kishida, long known as a fiscal hawk, has been prioritising economic recovery from the COVID-19 crisis over long-term fiscal reforms since he took office in October.
Japan's public debt is more than double the size of its $5 trillion economy, the world's third largest, making it the industrial world's most indebted nation as a result of decades of massive spending aimed at reviving growth.
The government's rosier scenario was based on annual growth exceeding 2% in real terms and 3% in nominal terms - something that has been rarely seen since the asset bubble burst in the early 1990s. The more modest, or baseline, scenario assumes real growth of around 1% and nominal growth of around 1.5%.
(Reporting by Tetsushi Kajimoto; Editing by Mark Potter)