Japan to contemplate pushing back defence spending tax hike to 2025 or beyond

The Japanese government is considering putting off a tax increase that was supposed to fund the nation's defence spending. Speaking to Reuters, a "party source" on Monday revealed that the tax increase may be put off by a year to 2025.

In December, the coalition government agreed to raise some key taxes to fund the raising of the defence budget. However, stiff opposition fro.m lawmakers has reportedly delayed the decision regarding the implementation of the widely unpopular move.

Japan's defence budget increase

The tax increase plan follows through on Japanese Prime Minister Fumio Kishida's commitment to raising taxes to double the nation's defence, spending to two per cent of Japan's gross domestic product (GDP) by the year 2027.

This two per cent target, as per the Japan Times, will put the nation at par with other NATO nations.

Kishida's administration approved the move back in December of last year. As per them, a tax hike it will be put into motion "at an appropriate time" in 2024, or thereafter.

However, speaking to Reuters, the source said that the Kishida government's upcoming long-term policy framework which is expected to be released this week, will include information about the delay. It is expected to include language that allows for a delay in the implementation of tax hikes until 2025 or later. Previously, the Kyodo news agency had published a similar report.

Problems Kishida administration faces in the implementation of the tax hike

The plan which ultimately aims to increase the nation's defence spending has, as per Reuters, become bogged down in wrangling among lawmakers who objected to near-term tax increases. They oppose that the tax hike could hurt Japan's fragile economy.

As per Reuters, Japan is already struggling to secure funding sources for a planned defence spending of 43 trillion yen ($309 billion) over the next five years. This can potentially further complicate the nation's aim of balancing the budget - excluding new bond sales and debt servicing - by the fiscal year 2025.

People's opinion of the tax hike

In December of last year, following news of the tax hike, support for Kishida's Cabinet was 33.1 per cent, the lowest since its launch in 2021. The disapproval rate stood at 51.5 per cent.

A poll conducted by Japan's Kyodo News found that 64.9 per cent of the Japanese disapprove of the tax hike plan.

Now, a delay in the implementation is expected to highlight the challenges faced by Kishida. The leader, according to Reuters, is juggling the conflicting priorities of restoring Japan's tattered public finances and addressing geopolitical risks from an 'assertive' China and an 'unpredictable' North Korea.

(With inputs from agencies)

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