Japanese govt is considering putting off a tax increase that was supposed to fund the nation’s defence spending

The Japanese government is contemplating postponing a tax increase that was intended to fund the country’s defense spending. According to a source from the ruling party, the tax increase may be delayed until 2025, as reported by Reuters.

In December, the coalition government had agreed to raise certain taxes to finance the expansion of the defense budget. However, strong opposition from lawmakers has caused a delay in the decision regarding the implementation of this widely unpopular measure.

The tax increase plan aligns with Japanese Prime Minister Fumio Kishida’s commitment to doubling defense spending to two percent of the country’s gross domestic product (GDP) by 2027. This two percent target would bring Japan in line with other NATO nations, as reported by the Japan Times. Kishida’s administration had approved the plan last year, stating that the tax hike would be implemented “at an appropriate time” in 2024 or later.

However, the source mentioned to Reuters that the upcoming long-term policy framework of the Kishida government, expected to be released this week, will include information about the delay. It is anticipated to provide flexibility for the implementation of tax hikes until 2025 or later. A similar report had previously been published by the Kyodo news agency.

The implementation of the tax hike has faced challenges within the Kishida administration due to disagreements among lawmakers who have raised concerns about the potential negative impact on Japan’s fragile economy, as stated by Reuters. Japan is already struggling to secure funding sources for its planned defense spending of 43 trillion yen ($309 billion) over the next five years, which could further complicate the nation’s goal of balancing the budget by fiscal year 2025, excluding new bond sales and debt servicing.

The tax hike plan has received widespread disapproval among the Japanese population. In December of the previous year, a poll conducted by Japan’s Kyodo News indicated that 64.9 percent of Japanese citizens disapproved of the tax hike. A delay in the implementation of the tax hike is expected to highlight the challenges faced by Kishida as he navigates the conflicting priorities of restoring Japan’s public finances and addressing geopolitical risks posed by an assertive China and an unpredictable North Korea, as highlighted by Reuters.