Kana Nakamura
2nd Year Economics
Our country, Japan, faces many financial difficulties. The tax revenue is not increasing as much as expected. Moreover the expenditure and the issue of bonds are increasing. Under these conditions, Japan can go ” bankrupt”.
To avoid that situation, we have an index to grasp the present conditions. It is the “Primary Balance.” Primary Balance calculates by this formula below.
Primary Balance
= (Revenues － Revenues from bond) － (Expenditures － Expenditures from bond)
That is to say, if primary balance is “ZERO”, payment equals new borrowing. So balance of debt does not increase. If the primary balance is plus, then we are able to repay. If it is minus, then the debt would be increasing.
How much primary balance is there in Japan? In 2004, the revenues and the expenditures were 82.1 trillion yen, the revenues from bond were 36.6 trillion yen and the expenditures from bond were 17.6 trillion yen. So the primary balance is 19 trillion yen. That is to say, Japan has 19 trillion yen as the budget deficit. Though in budget of 2007, the revenues and the expenditures were just about equal, 82.9trillion yen, the revenues from bond became 25.4 trillion yen and the expenditures became 21 trillion yen. So primary balance in 2007 is 4.4 trillion yen. Namely, the budget deficit has cut down. If we can reduce the primary balance as it is, financial standing may recover. So we must make best efforts to reduce it.
But situation is not so simple. Now, we consider the GDP. Because we need to compare the size of debt with “our wallet,” we use the index which compare balance of bond with GDP. If we divide the balance of bond by GDP, we get this index. In other words, it is “balance of bond / GDP.” From the above-mentioned facts, if primary balance equal zero, debt do not increase; namely the numerator of this index is steady. But if growth rate of GDP is minus,then this index increase. Therefore it is inadequate to aim for only zero primary balance.
There are two ideas to be considered about this matter.
First, let us suppose that primary balance is zero. If the long-term rate of interest is smaller than the long-term growth rate, in that case in the index, the denominator increase faster than the numerator does. So as time pass more, the debt become smaller.
Second, similarly let us suppose that Primary Balance is zero. If the long-term rate of interest is larger than the long-term grows rate, in that index, the numerator increase faster than the denominator. So as time pass by , the debt become larger.
Which idea is right? We suppose that the long-term growth rate is larger or the long-term rate of interest is larger. Probably, to say, from the theory of economics, the latter may be right. Because in the advanced countries , for example Japan, USA and so on, the growth rate is slow. So the long-term rate of interest tend larger than the long-term growth rate.
Whether we suppose that the long-term rate of interest is larger or not, I think that Japan has to decrease the useless expenditures. Actually there are many useless expenditures, for example, “Zaiseitouyuusi”. The resource of this institution was Japan Postal Service Public Corporation. This institution lends money to unstable companies, because they have a lot of money by the support of the nation. So government forms the policy. Japan Postal Service Public Corporation shifts from public to private. It is important for decreasing the budget deficit by such a policy. There is still room for improvement otherwise. For Japan become a rich nation, we make effort to decrease the budget deficit.
