By Tetsushi Kajimoto and Takaya Yamaguchi
TOKYO (Reuters) -Senior officials of Japan’s ruling Liberal Democratic Party’s tax panel agreed on Wednesday to raise key taxes to pay for the defence budget, as the government prepares to present a bill to parliament to boost defence capability.
However, the plan to raise corporate and tobacco taxes and an income tax designed for disaster reconstruction stopped short of winning consensus from broader party lawmakers, who remained cautious about politically unpopular tax increases.
“We have not reached a point where we can leave the decision up to the chair,” Ryu Shionoya, a senior tax panel official, told reporters after two-hour long intra-party meeting. “Some lawmakers questioned the right or wrong of corporate tax hikes at a time when wage hikes and business investment are called for despite severe economic situation.”
The ruling bloc is set to decide this week on annual tax-code revisions for the next fiscal year, which begins in April, along with the defence budget funding issue.
Opinions within the LDP were split on politically unpopular tax hikes to help finance a plan to double the ratio of defence spending to 2% of Japan’s gross domestic product (GDP) within five years to cope with assertive China, unpredictable North Korea and Russia.
Saddled with the industrial world’s heaviest public debt burden, however, Japan’s government is struggling to scrape together funding sources to earmark defence spending of 43 trillion yen ($317 billion) over the next five years.
Of the three taxes targeted for hikes, the special income tax was originally aimed at funding the cost of rebuilding areas stricken by 2011 earthquake and tsunami, which has got nothing to do with military spending.
The government is set to tap foreign reserves special account for a 3.1 trillion yen ($23 billion) boost in defence spending, a draft plan seen by Reuters showed. That money, along with other non-tax revenue, unspent funds and sales of state assets, will be included in new ways to pay for strengthening defence capabilities.
Prime Minister Fumio Kishida has vowed to secure some 1 trillion yen in the fiscal year that ends in March 2028 by raising taxes.
The premier has pledged to forgo tax hikes next fiscal year but to consider tax hikes in stages from fiscal 2024.
Kishida has effectively ruled out the possibility of issuing extra bonds to fill any budget gaps.
($1 = 135.4500 yen)
(Reporting by Tetsushi Kajimoto; Additional reporting by Takaya Yamaguchi; Editing by Tom Hogue and Lincoln Feast)
