Dissent emerges within LDP over tax hike to finance higher defense spending

The Yomiuri Shimbun

2:00 JST, December 11, 2022

Now that Prime Minister Fumio Kishida has instructed the ruling Liberal Democratic Party and its coalition partner Komeito to consider tax hikes to raise about ¥1 trillion per year as financial resources for a dramatic strengthening of the nation’s defense capabilities, opposition to the prime minister’s move has emerged within the LDP, of which Kishida is president.

At a general policy meeting of the LDP on Friday, voices calling the move “too hasty” were heard.

“It is the wrong order to talk about a tax hike before explaining plans for enhancing defense capabilities to the public,” Masahisa Sato, a former state minister of foreign affairs, stressed at the policy meeting.

He said that the revised forms of three key defense documents, including the National Security Strategy, must first be presented to the public, rather than the discussion of the tax hike.

The policy meeting lasted about two hours, during which more than 50 LDP Diet members made remarks. The prime minister’s comments that he wants specific plans for the tax hike to be decided by the end of the year drew particular criticism.

Kishida has said that, of the about ¥4 trillion in additional annual financial resources that will be needed after fiscal 2027, the tax hike will be limited to covering ¥1 trillion, while ¥3 trillion will be covered by spending reforms and other measures. The government apparently intends for the tax hike discussion to focus on raising corporate taxes.

This approach was met with resistance, especially among conservative LDP members who were close to the late Prime Minister Shinzo Abe and are cautious about raising taxes.

Minoru Kiuchi, former state minister of foreign affairs, said, “I don’t understand why government bonds should be excluded from the beginning,” insisting that increased defense spending should be financed by issuing government bonds.

Shuichi Takatori, former state minister of agriculture, forestry and fisheries, said, “We cannot allow corporate tax hikes in the current severe economic condition.”

Others argue that fiscal discipline should be emphasized rather than relying on government bonds to cover most of the increase in defense spending. “The option of raising taxes should not be excluded,” said former Defense Minister Tomomi Inada, but such arguments were the minority opinion during the meeting.

Yohei Matsumoto, chief secretary of the LDP Policy Research Council, told reporters after the meeting that about 40 LDP lawmakers spoke up to express opposition to the idea, and only about a dozen expressed understanding that the decision should be made by the end of the year.

“I will responsibly convey our opinions to the government,” said LDP Policy Research Council Chairperson Koichi Hagiuda in wrapping up the meeting.

The stage for LDP discussion will now shift to the Research Commission on the Tax System.

An unofficial meeting of senior members of the commission was also held on Friday, but it is not clear whether the commission will be able to provide a detailed plan for the possible tax hike, or decide on its timing, by the end of the year.

Behind the strong opposition to the tax hike is the perception that raising taxes will impede economic growth. At a press conference on Friday, Economy, Trade and Industry Minister Yasutoshi Nishimura said, “We should be cautious about raising taxes at this time.”

On the same day, Hiroshige Seko, secretary general of the LDP in the House of Councillors and a member of the Abe faction, met with Kishida at the Prime Minister’s Office. At a press conference prior to the meeting, Seko stated, “At this point, the situation is not sufficiently ripe to reach a conclusion on the amount, tax items, or timing for tax increase.”

It is believed that the two exchanged views on the financial resources.