Japan to consider delaying defence spending tax increase to 2025 or beyond: Source

TOKYO - The Japanese government is looking into putting off a tax increase to fund extra defence spending by a year to 2025, a ruling party source with direct knowledge of the matter told Reuters on Monday.

The coalition government

agreed in December to raise key taxes

to increase the defence budget, but stiff opposition among lawmakers effectively delayed a decision on when to implement the unpopular move.

The tax plan, following through on Prime Minister Fumio Kishida’s commitment to raise taxes to

double defence spending to 2 per cent of gross domestic product

by 2027, had become bogged down in wrangling among lawmakers who objected to near-term tax increases that could hurt Japan’s fragile economy.

Mr Kishida’s administration has said that the tax hikes will kick in “at an appropriate time” in 2024 or thereafter.

The government’s long-term policy framework, expected for release later this week, will include language that allows the tax hike to be delayed until 2025 or later, the source said, confirming an earlier report by Kyodo news agency.

The delay would highlight challenges for Mr Kishida who juggles the conflicting priorities of
restoring Japan’s tattered public
finances and addressing geopolitical risks from an assertive China and unpredictable North Korea.

Japan is struggling to secure funding sources for planned defence spending of 43 trillion yen (S$414 billion) over the next five years.

This could further complicate its aim of balancing the budget – excluding new bond sales and debt servicing – by fiscal year 2025. REUTERS