Japanese Prime Minister Fumio Kishida said Thursday the government plans to raise taxes and secure 1 trillion yen ($7.3 billion) every year from fiscal 2027, to cover a quarter of the additional funding needed to achieve a substantial increase in defense spending to cope with the severe security environment surrounding Japan.
Kishida, who is aiming to boost the nation's defense spending to a combined 43 trillion yen in the next five years starting fiscal 2023, said, however, that the government will not raise income taxes given the severe economic situation surrounding households. The corporate tax is widely seen as a viable option for increase.
Japan has long capped defense spending at around one percent of gross domestic product, with around 5.4 trillion yen earmarked for the current fiscal year.
Kishida is now aiming to bring that figure to 2 percent in fiscal 2027, and this will require Japan to spend a combined 43 trillion yen in the next five years. That amount is a leap from the around 27.47 trillion yen under the existing plan for the five years from fiscal 2019.
"It's necessary to secure over 1 trillion yen by (using) tax measures and we need to ask for cooperation," Kishida said at a meeting between the government and ruling party lawmakers.
Of the 4 trillion yen deemed necessary every year, the government aims to secure 1 trillion yen by imposing higher tax rates and the rest by pushing for spending reform and tapping surplus money and non-tax revenue, Kishida said.
The prime minister asked the tax panels of the Liberal Democratic Party and Komeito to decide when and which tax rates should be targeted, as the ruling coalition is stepping up work to finalize a tax reform plan for fiscal 2023 next week.
Japan is also reviewing three key documents on security and defense policy to better reflect the changing security environment that will serve as the rationale for more defense spending. The government will then draw up a state budget for the next fiscal year before year-end.
In a major development for a nation long committed to its exclusively defense-oriented policy, the ruling parties have agreed on the need for Japan to acquire an enemy base strike capability.
The United States, the longtime ally of Japan, has welcomed Tokyo's move to increase defense spending, at a time when the two nations have been boosting the interoperability of the military and the Self-Defense Forces. This, however, has alarmed China.
