Prime Minister Sanae Takaichi has told those around her she is cautious about a large tax increase to fund defense, as the government weighs ¥50 trillion to ¥60 trillion in five-year spending against a defense ministry estimate of about ¥80 trillion, multiple government officials said on the 12th.
The figure will go into the three national security documents the government plans to revise by the end of the year, the Mainichi Shimbun reported. The size of the defense increase is the central question in the revision.
The current defense buildup plan, one of the three documents, runs through fiscal 2027. The government will move its revision forward by a year, as set out in the coalition agreement between the Liberal Democratic Party and Nippon Ishin no Kai.
¥80 Trillion Costed, Finance Ministry Objects
In the 2022 revision, the government raised five years of defense spending from fiscal 2023 to about ¥43 trillion, 1.5 times the previous plan. Spending that had held near ¥5 trillion climbed in stages to ¥8.8 trillion in fiscal 2026.
The government has said it will total up the amount needed, citing a worsening security environment. According to government officials, the defense ministry has costed about ¥80 trillion for the five years from fiscal 2027.
The finance authorities have called that unrealistic and are seeking cuts, and adjustments behind the scenes are accelerating. A large defense increase would make a tax rise unavoidable.
A senior government official said Takaichi has indicated she does not much want a "defense tax increase." Even if she proceeds, the increase is expected to be limited.
Behind the caution is the consumption tax cut the government has made a centerpiece of its inflation response. Cutting consumption tax by about ¥5 trillion a year while raising taxes sharply could invite questions about the consistency of fiscal policy.
Criticism has also come from within the LDP. "Cutting the consumption tax and sharply raising taxes for defense would be incoherent," a former cabinet minister said.
Corporate tax is under consideration as a target. In the last revision the government projected a shortfall of about ¥4 trillion in fiscal 2027 and decided to cover ¥1 trillion of it by raising corporate and tobacco taxes.
With the prime minister cautious on a defense tax, momentum for a large corporate tax increase has faded. One view inside the government is that corporate tax can be raised by only about ¥1 trillion a year.
US Pushes for 3.5% of GDP
The United States has asked NATO members and many allies to spend 3.5% of GDP on core military costs, and the government is considering how to respond.
The last revision added four areas of security-related spending, including public infrastructure and research and development, to defense spending and set the total at 2% of GDP, double the previous 1% level. The government met that target with about ¥11 trillion in the fiscal 2025 supplementary budget.
Whether to raise the GDP ratio again is the focus of this revision. The government is considering adding economic security costs such as procurement of critical minerals and semiconductors, along with space-related spending, to expand the total.
A senior official in the prime minister's office said it matters whether the figure can be explained to the United States.