EDITORIAL: Japan's fiscal deficit

The summit of the Group of 20 advanced and emerging economies concluded in Toronto on Sunday. The group released a declaration that includes an agreement by members to halve their fiscal deficits by 2013. Japan, however, was exempted from this pledge. Tokyo should not remain content with such woeful special treatment for long.

The United States stressed the importance of buoying its economy, which continues to falter. The European Union defined fiscal consolidation as its top priority. The leaders compromised by settling on efforts to achieve fiscal soundness with consideration for growth.

The thinking is that while growth will be treated with importance, steps will also be taken to tighten fiscal spending "tailored to national circumstances." That, it is believed, is the key to winning the market's trust and sustaining growth.

Chasing the two elusive goals of economic growth and restoration of fiscal health is a treacherous road. Insofar as both are indispensable, however, the only feasible choice is for all parties to join hands in pursuing those ends. Any seeming breakdown in collaboration between the developed nations in this quest would provide new fodder for coming under attack in the markets.

Though growth is naturally vital, the reckless pursuit of high growth is also clearly an unfeasible course of action.

For the past decade or more, the growth rate in the United States has been inflated by the information technology and housing bubbles and other economic developments. If Washington tries to achieve an economic recovery through such a past mind-set, it would spawn a wide array of distortions around the world again.

In Europe as well, due to bubbles swelling in Spain and Ireland, it has been hard to recognize the cracks in the unity of European countries.

To prevent a recurrence of such errors, it is important to advance fiscal consolidation in a way that minimizes the negative impact on business activity.

The United States also recognizes the need for deficit reduction over the medium term. That supported Washington's decision to climb aboard the deficit-halving initiative. Left behind in this process is Japan--a nation encumbered with a ratio of national debt nearly twice its gross domestic product.

Trial calculations indicate that revenues generated by a 9-percent consumption tax rate would be required for Japan to halve its annual fiscal deficit of more than 40 trillion yen ($451 billion) by 2013. This is premised on no increase in budgetary spending.

Opting for such a sudden tax hike program under deflation is hardly realistic. For that reason, Japan must rapidly resolve its deflated economy and move forward with genuine fiscal consolidation.

The goal declared by the government of Prime Minister Naoto Kan to achieve black ink in the primary balance of both the central and local governments in fiscal 2020 is easygoing compared with the targets set by other countries. Ensuring a strong economy and social security safety net also demands the creation of strong public finances incorporating a hike in the consumption tax and other tax reforms.

Assisted by anxiety over European economies, Japanese government bonds are being bought up in the market. This is a reflection of Kan's policy talk of raising the consumption tax, a stand earning high marks for Tokyo's apparent intent to put its fiscal house in order.

However, the international community would be disappointed if Kan took a blurred stand on raising taxes because of the tough outlook for his ruling Democratic Party of Japan in the July 11 Upper House election.

That, in turn, would undercut Japan's prospects for graduating from its status as an exception to the rule.

--The Asahi Shimbun, June 30