Pay for increased defense spending through tax hikes, not JGBs, fiscal panel meeting suggests

REUTERS/Yuriko Nakao
The Diet building is pictured behind a road marking in Tokyo July 12, 2010.

Increased defense spending should be funded by tax hikes, according to the majority of members of a subcommittee of the Fiscal System Council, an advisory panel to the finance minister.

The subcommittee met Friday and most members were against the further issuance of government bonds to provide fiscal resources for the government’s plans to strengthen the nation’s defense.

The government seeks to increase the defense budget to the 2% level of the nation’s gross domestic product in five years. For that purpose, it needs to annually increase the budget by ¥1 trillion or more.

At the meeting, many members said that increased spending must be realized through an increase in core taxes, such as the corporate tax and the income tax. Even if government bonds are temporarily issued for defense purposes, some members said that financial resources for the redemption of the bonds must be explicitly stated.

“Since they need to continuously support defense capabilities, we must think about taxes,” Hiroya Masuda, acting chairperson of the subcommittee, said at a press conference.

At the meeting, the Finance Ministry said cost-effectiveness must be emphasized when defense equipment is introduced, and equipment with poor cost-effectiveness must be reviewed and perhaps abolished.

The ministry also called for having priorities in mind when appropriating the budget for research and development.