Draft of economic, fiscal reform policy hints at 2％ increase in defense spending

The Yomiuri Shimbun

1:00 JST, June 2, 2022

Much attention was focused on how the draft of the government’s economic and fiscal reform policy would refer to an increase in defense spending. Released Tuesday, the draft of the Basic Policy on Economic and Fiscal Management and Reform ultimately did not specify the range of increase, but did refer to the fact that each member state of the North Atlantic Treaty Organization aims to boost defense spending to more than 2% of their gross domestic product.

The draft policy can therefore be interpreted as hinting at a significant jump in defense spending.

“We must discuss what is needed to protect people’s lives and livelihoods” with regards to the defense budget, Prime Minister Fumio Kishida said at the House of Councillors Budget Committee on Tuesday.

“No concrete figure can be worked out,” Kishida said, unless the needed defense capacity, budget and financial resources are considered as a whole.

This issue has drawn attention because Kishida expressed his resolve during a summit with U.S. President Joe Biden on May 23 to secure “a substantial increase” in Japan’s defense spending.

Within the ruling Liberal Democratic Party, former Prime Minister Shinzo Abe has said, “It is a matter of course to secure defense outlays of 2% of the GDP. The will of the state needs to be shown in the basic policy.”

However, the Finance Ministry has maintained a cautious stance, asserting that the issues of increasing defense outlays and securing the financial resources to do so should be discussed together. The ministry said NATO member Germany, for instance, has announced that it will increase its defense spending and at the same time clarified how it will fund such measures, through such means as establishing a fund and raising taxes.

The draft therefore referred specifically to greatly strengthening Japan’s defense capability, but did not touch on the scope of the increase in defense spending. Instead, it said in a footnote that NATO aims to have its member states increase defense spending to more than 2% of their GDP.

This allowed the draft, as a senior Defense Ministry official put it, “to also be interpreted as [the government] suggesting a 2% target.”

Discussions concerning the range of increase in defense spending are expected to get into full swing after the upper house election in July. Eyes will be fixed on the revision of three defense-related documents, including the National Security Strategy, and the compilation of next fiscal year’s budget, both of which are slated for the end of 2022.

Defense outlays total about ¥5.4 trillion in the fiscal 2022 budget, or about 0.96% of Japan’s GDP. If this were to be raised to 2% of the GDP, it would reach about ¥11 trillion.

Debate on how to secure funding will be inevitable if defense spending is to be raised, including possible cuts in social welfare expenditures and tax increases, and the issuance of government bonds.