Japan PM Kishida: Will take tax steps in stages towards fiscal 2027

A senior ruling party official said on Wednesday Japan will not rule out any measures to fund increases in defence spending, but that the government would not raise taxes in the next fiscal year when the five-year defence spending plan kicks off.

Japanese Prime Minister Fumio Kishida said on Thursday that his government would not raise taxes next fiscal year but would take steps in stages towards fiscal 2027 to secure funding sources for boosting the deference budget. The defence budget is in focus as Japan prepares next fiscal year's budget since Kishida has announced plans to lift defence spending to an amount equivalent to 2% of gross domestic product within five years, from 1% now.

That would take Japan's defence spending to more than 11 trillion yen ($80 billion) from the current 5.4 trillion yen, giving the country the world's third largest military budget based on current levels after the United States and China. The boost in defence spending stems from an increasingly assertive China and unpredictable North Korea in addition to growing geopolitical risks due to the Ukraine crisis and the tension in the Taiwan Strait.

However, securing funding sources is coming under scrutiny as to how many unpopular tax hikes would be needed and how much more debt needs be issued, and more fundamentally whether Japan could secure sustainable funding sources over time. Some media opinion polls show the defence spending plan proved unpopular among the public as many people want the government to prioritize support to help them cope with the surging costs of living, not boosting military outlay.

Boosting military spending could further strain Japan's public debt, which is already worth more than twice the size of its economy, the biggest multiple in the industrialised world. A senior ruling party official said on Wednesday Japan will not rule out any measures to fund increases in defence spending, but that the government would not raise taxes in the next fiscal year when the five-year defence spending plan kicks off. ($1 = 136.9900 yen)

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