Japan wants to boost tax revenue by ¥1 tril. to fund defense spending hike

The Yomiuri Shimbun
The main gate of the Defense Ministry is seen in Shinjuku Ward, Tokyo.

Prime Minister Fumio Kishida is set to instruct the Liberal Democratic Party and its ruling coalition partner Komeito on Thursday to consider ways to increase annual tax revenues by about ¥1 trillion in fiscal 2027 to fund a drastic enhancement of the nation’s defense capabilities.

According to sources, the government is likely to decide when to start raising taxes after taking the economic situation and other factors into consideration, but it does not intend to increase taxes next fiscal year.

The government plans to boost defense spending to about ¥43 trillion over a five-year period beginning in fiscal 2023, according to a plan approved by the ruling parties on Wednesday.

Japan’s defense spending in the initial budget for fiscal 2022 is about ¥5.4 trillion.

In fiscal 2027, the government intends to increase defense and security-related expenditures to ¥11 trillion, 2% of the nation’s current gross domestic product.

“It is essential to secure solid financial resources to back increased spending, while maximum efforts are being made on spending reform,” Kishida has said.

The government plans to carry out expenditure reforms, use surplus funds and sell state-owned assets, among other measures, to minimize the tax burden on the public.

It also intends to create a “defense reinforcement fund” to finance defense expenditures with non-tax revenues and other sources when necessary.

Some LDP members have called for postponing in-depth discussions on tax hikes, but the prime minister has decided that an outlook on future finances should be unveiled by the end of the year, the sources said.

Kishida appears to be leaving the selection of specific tax items to be increased to the ruling camp’s tax research committee.

Among the three key taxes that account for a considerable part of the nation’s tax revenues — corporate, income and consumption — a proposal centering on corporate tax is considered a strong possibility.

“I hope thorough discussions will be held next week on the issue of funding defense expenditures,” Yoichi Miyazawa, chairperson of the LDP’s Research Commission on the Tax System, said at a meeting on Thursday morning.