In consideration of the revision of three security-related documents at the end of the year, the focus will be on securing permanent financial resources to support the strengthening of defense capabilities. Prime Minister Sanae Takaichi, who advocates ``responsible and active public finance,'' also plans to cut the consumption tax on foodstuffs and focus investment in strategic areas. It is expected that there will be competition for financial resources worth trillions of yen. If we rely on issuing government bonds, we risk losing confidence in the market, and we will be forced to make difficult decisions.
``We should secure a stable source of revenue without relying on issuing government bonds,'' and ``tax increases should not be ruled out.'' At a meeting of experts to revise the three documents held at the Prime Minister's Office on the 27th, attendees made these comments.
Defense spending in fiscal 2025, including related expenses, will be approximately 11 trillion yen, achieving the target of 2% of gross domestic product (GDP). However, Japan's security environment is becoming increasingly difficult due to cooperation among China, North Korea, and Russia. The Trump administration, which criticizes allies as "security free riders," insists on a 3.5% share of GDP.
Traditionally, the standard GDP was approximately 560 trillion yen in fiscal 2022. According to estimates by the International Monetary Fund (IMF), this will rise to $4,341.9 billion (approximately 685 trillion yen) in 2026. If the GDP ratio is 2.5%, it will increase to about 17 trillion yen, and if it is 3.5%, it will increase to about 24 trillion yen.
Furthermore, the depreciation of the yen has caused procurement prices for US-made equipment to rise.
The Takaichi administration plans to lower the consumption tax rate on food products to 1% for two years starting April next year, and the necessary financial resources will amount to about 10 trillion yen. The government also announced its intention to invest more than 370 trillion yen in public and private sectors in 17 fields, including semiconductors and artificial intelligence (AI), by fiscal 2040.
There are whispers within the government and ruling party that there is a plan to allocate the surplus in tax revenue to strengthening defense capabilities. However, a senior administration official is negative, saying, ``Upper growth is not a permanent source of revenue.''
Although some people are calling for a solution to the corporate tax increase, the business community is in the opposite position. Keidanren Chairman Yoshinobu Tsutsui stated at a press conference on the 20th, ``This could put a damper on the flow of investment expansion, and is not desirable from the perspective of international competitiveness.'' There are limits to spending reform, and many believe that ``the end result will be national debt'' (Liberal Democratic Party veteran).
According to people involved, the prime minister has prioritized securing funding for the consumption tax cut, and discussions on defense funding have been delayed within the government. A senior administration official said, ``My head hurts.'' Even those close to the prime minister acknowledged the difficult situation, saying, ``There is no way the financial resources will come out like a hammer.''
