Japan wobbles on tax hikes to pay for historic defence build-up
JAPAN may again postpone a decision on hoisting taxes to help cover rising defence spending, a senior ruling coalition official said, raising more questions about how Tokyo intends to pay for a historic expansion of its military capabilities.
“It would be wonderful if we could make a decision this year, but if we can’t it doesn’t mean that we will stop increasing defence spending and boosting our defence capabilities,” Mitsunari Okamoto, the policy chief of Komeito, the coalition partner of Ishiba’s Liberal Democratic Party, said.
As part of a five-year defence build-up launched in 2022 that’s projected to cost 43 trillion yen (S$381 billion), the Japanese government has said it will raise personal income, corporate and tobacco taxes to cover the added costs. The increase in outlays would push defence spending to 2 per cent of gross domestic product from just over 1 per cent previously.
The government has dithered ever since on the timing of the proposed tax increases, deferring a decision on the matter on an annual basis. Pressure to resolve the issue is building with Donald Trump poised to return to the White House. Trump has repeatedly demanded that US allies shoulder a larger portion of their security costs.
Prime Minister Shigeru Ishiba recently said he wants to finalise a plan by the end of this year ahead of tax changes for the fiscal year starting next April, but the ruling coalition’s loss of its majority in last month’s election will complicate that effort.
In October, the Defence Ministry said it would seek about 8.5 trillion yen for its portion of the national budget for next fiscal year, a 10.5 per cent increase from the current year’s initial budget. The record request includes funds needed to build a new satellite intelligence-gathering system to improve missile detection capabilities.
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Komeito, which has its roots in a lay Buddhist organisation, has traditionally been cautious about extra defence spending. But rising political tensions in the region have made citizens across the political spectrum more open to the idea of enhancing military capabilities. Among concerns are the rise of China’s military and Beijing’s claim to some Japanese-administered islands, North Korea’s rapid development of missiles that could be used to deliver a nuclear strike and Russia’s invasion of Ukraine.
The growth of political calls in the US, including from Trump during his first term as president, for American allies to rely less on the US military for their security, has also helped spur a change in thinking in Japan about defence spending. Public opinion polls in Japan generally show support for more defence spending, although there’s far less support for tax increases to pay for it.
Okamoto said other funds could be used to cover extra defence spending if tax increases are again deferred.
“Even if there is no tax increase, the government will appropriately find the reserves for defence spending,” he said, adding: “It doesn’t mean that the whole framework (to raise defence capabilities) is going to go haywire.”
The path to agreement on tax increases for defence spending has been clouded by the coalition’s need for the support of at least one opposition party to pass legislation in parliament after it lost its majority in October’s election. The coalition has looked to the small Democratic Party for the People to prop up the government, but its leader has said he is opposed to tax increases to cover more defence spending.
In the interview, Okamoto recalled Trump’s directness during a meeting while the Japanese politician was working for Goldman Sachs. He said he was optimistic Ishiba’s tendency to speak his mind may help him replicate the warm relationship with the US leader developed by former Prime Minister Shinzo Abe during Trump’s first term.
“Among US presidents, Trump is probably the one that values personal relationships the most,” Okamoto said. “When he and Ishiba make agreements, I would like the prime minister to be able to say: ‘There’s no need to worry, I will take care of everything in Japan.’” BLOOMBERG
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