By Yuzo Saeki
TOKYO, Jan 6 (Reuters) - Japan's government edged away on Tuesday from its self-imposed goal of balancing the budget, acknowledging that the target was becoming harder to meet as the global financial turmoil pushes the economy deeper into recession.
Under economic policy guidelines drawn up in 2006, Japan pledged to cut spending and aim to balance the budget, excluding debt issuance and servicing, by March 2012 to fix its tattered finances.
But this goal is becoming increasingly tough to meet, the government said in a draft outline of its midterm fiscal policy on Tuesday, in a sign that the deepening economic woes were forcing it to prioritise spending to support the economy over restoring fiscal health.
Still, Prime Minister Taro Aso said efforts to meet the target would continue.
"While dealing with unprecedented uncertainties for the economy at home and abroad, we need to achieve the target as soon as possible," he told parliament on Tuesday.
The draft outline, submitted to the government's top economic advisory panel on Tuesday, came as Japan attempts to balance the need to restore already tattered public finances and boost spending to prop up a faltering economy.
Japan, like the United States, is already in recession, with companies such as carmakers Toyota and Honda slashing output as customers close their wallets worldwide.
Tokyo has joined other nations across the world in boosting spending to stem the fallout from the global credit crisis, unveiling the nation's biggest ever budget for the fiscal year starting in April.
That budget, at 88.5 trillion yen ($950 billion), along with two other extra budgets for the current year, will finance 12 trillion yen in fiscal stimulus programmes, equivalent to more than 2 percent of Japan's gross domestic product.
This spending puts even more pressure on Tokyo's already stretched fiscal purse.
The ratio of Japan's debt to GDP is forecast to reach 157.5 percent in March 2010, the worst among major industrialised countries.
Due to an increase in spending, next fiscal year's budget for the central government will run a primary-balance deficit of about 13 trillion yen, deeper than the 5 trillion yen deficit initially expected for the current year.
Falling tax revenues and rising social security costs amid an ageing population are also playing a part in the worsening fiscal situation.
As the economic downturn has dealt a severe blow to corporate profits, tax revenues for next fiscal year are expected to slide to 46.1 trillion yen from 53.55 trillion yen initially expected for the current fiscal year.
In one step towards resolving these problems, Aso has said Japan should raise the consumption tax in three years, the amount of time he expects needed for the economy to regain enough strength to absorb the shock of the tax hike. (Editing by Hugh Lawson)