Japan to put off tax hike to cover increased defense spending
Japan plans to put off for now a tax hike intended to finance a planned increase in the country’s defense spending, a government source said Sunday.
The government will continue to study measures to secure a stable source of revenue as Prime Minister Fumio Kishida has called for raising defense spending to 2 percent of gross domestic product in fiscal 2027 from the current 1 percent.
The government will set the general direction of the plan but is likely to forego deciding on a specific tax increase when it compiles the initial budget for fiscal 2023 in late December, the source said.
It intends to prioritize cutting non-defense outlays because some Liberal Democratic Party lawmakers oppose raising taxes that would directly hit consumers and companies, the source said.
The LDP and its ruling coalition partner Komeito will launch full-fledged talks Tuesday on a tax reform plan for fiscal 2023, and the two parties are expected to adopt a tax reform blueprint around Dec. 15.
The focus of the talks is how to fund the envisaged increase in defense expenditures, with some having floated the idea of hiking the corporate tax.
The government is considering raising the defense outlays, which totaled about 5.4 trillion yen ($40.2 billion) in the initial fiscal 2022 state budget, in stages from fiscal 2023 before reaching the 2 percent target in fiscal 2027.
The 2 percent target will put Japan on par with North Atlantic Treaty Organization members.
The drafting of the defense budget for fiscal 2023, which starts in April, culminates after the Kishida Cabinet approves three key documents on Japan’s security policy in mid-December.