Japan's ruling parties on Wednesday agreed that higher tax rates are necessary to make up for an expected shortfall in funding a major increase in defense spending as envisaged by Prime Minister Fumio Kishida to cope with the severe security environment.
Senior officials of the ruling Liberal Democratic Party and Komeito confirmed that priority should first go to spending reform and tapping surplus funds, and that they will not seek to raise taxes in the next fiscal year from April, a ruling party source said.
Kishida has instructed his defense and finance ministers to target around 43 trillion yen ($312 billion) in defense spending over the five-year period until fiscal 2027, up more than 50 percent from around 27.47 trillion for its current five-year plan from fiscal 2019.
The premier is seeking to boost defense-related expenditures, which have long been capped at around 1 percent of gross domestic product, to 2 percent in fiscal 2027, amid such calls from the LDP. The 2 percent target is on a par with that of North Atlantic Treaty Organization members.
Finding stable funding sources is a daunting task. Japan already has debt that is more than twice the size of its economy, while raising taxes will likely face a backlash from businesses and the broader public.
Yoichi Miyazawa, who heads the LDP's tax panel, told a meeting on Wednesday that how to secure the funding will be on the agenda next week, as the ruling coalition seeks to finalize a tax reform plan for the next fiscal year on Dec. 15.
Kishida has vowed to achieve a "substantial" increase in defense spending, timed with a review of three key documents on national security and defense. The documents, scheduled to be finalized later this month, will justify the increased expenditure to bolster Japan's defense capabilities.
Russia's war on Ukraine, the rise of an assertive China and nuclear and missile threats from North Korea are prompting calls in Japan, especially within the conservative LDP, for more defense spending to rework the country's defense posture, which has been exclusively defense-oriented in the postwar era.
The ruling coalition has agreed on the need for Japan to acquire an enemy base strike capability, or what they call a "counterstrike capability."
