The government has released estimates showing that the fiscal deficit is expected to widen even under a scenario assuming 3% nominal growth under the Takaichi administration’s responsible proactive fiscal policy. The deficit cannot be offset by higher tax revenue alone, and rising interest payments will weigh on public finances.
Under the responsible proactive fiscal policy set out by the government in its policy speech, the government said it aims to promote corporate investment and achieve growth and higher tax revenue. The widening fiscal deficit is one of the issues identified in the debate over the relationship between growth and tax revenue.
Estimates released by the Ministry of Finance in February 2026 show that, even assuming nominal growth, including price changes, remains at 3% from FY2027 onward, the general account fiscal deficit will widen from ¥11.7 trillion in FY2026 to ¥17.0 trillion in FY2029. Tax revenue is projected to increase from ¥83.7 trillion to ¥95.5 trillion, but interest payments on government debt are expected to rise from ¥13.0 trillion to ¥21.6 trillion.
Additional spending and higher interest payments are contributing to the widening deficit even amid low growth. In some cases, the increase in interest payments exceeds the growth in tax revenue, highlighting the reality that growth alone will not advance fiscal consolidation.
In a reference to prior research on corporate surpluses, or net savings, the article introduces the argument that the greatest challenge facing the Japanese economy is excess corporate savings, citing examples from the United States, the United Kingdom and Germany as international comparisons. This suggests a difference between the view that this is a problem unique to Japan and the view identified by some studies.