Govt Must Not Avoid Discussions on Securing Stable Financial Resources

The foundations for strengthening defense capabilities can finally be said to be in place. The government must find ways to secure stable financial resources, which is the remaining challenge.

A special measures law to utilize nontax revenues to increase defense spending was passed by a majority vote, with parties including the Liberal Democratic Party and its coalition partner Komeito voting in favor. The latest development means the legislation that the government had regarded as the most important bill in the current Diet session has been realized.

Given the extreme deterioration of the security environment surrounding Japan, it is appropriate to increase defense spending.

Missiles and other ammunition are in short supply. Self-Defense Force facilities are also noticeably aging. The government needs to purchase equipment and upgrade facilities in a planned manner to steadily improve the nation’s defense capabilities.

The main pillar of the special measures law is the establishment of a defense capabilities enhancement fund to accumulate surpluses from special accounts and nontax revenues, such as profits from the sale of national assets. The fund will be part of the defense budget from fiscal 2024 onward.

The government has decided to set the total amount of defense expenditures at around ¥43 trillion over the five-year period from fiscal 2023 to fiscal 2027. This is more than 50% higher than the current defense spending plan of around ¥27.5 trillion.

This means another ¥14.6 trillion or so will be necessary to meet the new spending plan. But the budget that can be secured from the nontax revenue decided upon this time is only ¥4.6 trillion to slightly over ¥5 trillion.

For this reason, the government has come up with a policy of financing the budget by increasing tax on such items as tobacco, in addition to utilizing the surplus from budgetary account settlement — the leftover from annual budget spending — at about ¥3.5 trillion, and introducing spending cuts of more than ¥3 trillion.

However, all of the measures envisioned to secure financial resources are estimates, and it is not clear whether they will actually be able to be secured.

For example, the surplus in the account settlements is calculated based on the average of the past 10 years, and it is possible that it will be less than the estimated amount.

In addition to using spending cuts as a way to finance defense capabilities enhancement, spending cuts are also being considered as a measure to secure funds to fight the declining birth rate. Is there enough margin for such cuts?

At the end of last year, the government decided that tax hikes would be implemented “at an appropriate time in 2024 or beyond.” However, in the annual Basic Policy on Economic and Fiscal Management and Reform adopted Friday, the government indicated that the hikes would be postponed to “2025 or beyond.”

If the government is unable to secure financial resources as planned and must resort to issuing government bonds, it will pass the bill on to future generations. Prime Minister Fumio Kishida must not shy away from deciding when to implement the tax hikes.

During the latest Diet session, legislation to strengthen the production base to support the defense industry was also established. The law is intended to provide financial support to firms in the defense industry working to improve their manufacturing processes and to put a stop to the tide of withdrawals from the industry.

If the nation’s defense industry weakens, repairing of defense equipment or deploying additional equipment will be difficult when Japan faces danger. Generous support must be provided to the industry.

(From The Yomiuri Shimbun, June 18, 2023)