Japan’s ruling party agrees to raise taxes to boost defence, says official

SENIOR officials on the tax panel of Japan’s ruling Liberal Democratic Party (LDP) agreed on Wednesday (Dec 14) to raise key taxes to pay for the country’s defence budget, as the government prepares to present a Bill to parliament on boosting defence capabilities.

However, the plan stopped short of winning consensus from broader-party lawmakers, who remained cautious about politically-unpopular tax increases. The raises would apply to corporate and tobacco taxes, as well as a special income tax designed for disaster reconstruction.

The party plans to double the ratio of defence spending to 2 per cent of Japan’s gross domestic product within five years, in order to cope with an assertive China as well as an unpredictable North Korea and Russia. However, opinions within the LDP were split on using politically-unpopular tax hikes to finance the scheme.

Ryu Shionoya, a senior tax panel official, said: “We have not reached a point where we can leave the decision up to the chair. Some lawmakers questioned the right or wrong of corporate-tax hikes at a time when wage hikes and business investments are called for despite a severe economic situation.”

The ruling bloc is set to decide this week on annual tax-code revisions for the next fiscal year, which begins in April, along with the defence-budget funding issue.

Of the three taxes targeted for hikes, the special income tax was originally meant for funding the cost of rebuilding areas struck by the 2011 earthquake and tsunami, which have nothing to do with military spending.

Saddled with the industrial world’s heaviest public debt burden, the Japanese government is struggling to scrape together funds to earmark a defence budget of 43 trillion yen (S$428 billion) over the next five years.

A draft plan seen by Reuters showed that the government was set to tap a special account of foreign reserves for 3.1 trillion yen to use in defence spending. That amount, along with other non-tax revenue, unspent funds and sales of state assets, will be among the payment methods for boosting the country’s defence capabilities. 

Prime Minister Fumio Kishida has vowed to secure some 1 trillion yen by March 2028 through tax hikes. He pledged to forgo tax hikes in the next fiscal year, but said he would consider tax hikes in stages from 2024.

SEE ALSO

Japan to radically overhaul defence policy on China threats

Japan appears US$44b short as it seeks to bolster defence

Japan vows to stick to budget balancing goal despite defence boost

He also ruled out the possibility of issuing extra bonds to fill budget gaps. REUTERS