Japan’s Kishida Hunts for Cash to Fund Planned Defense Buildup

Isabel Reynolds and Emi Urabe
·3 min read
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(Bloomberg) -- Japanese Prime Minister Fumio Kishida faces a dilemma: Unnerved by Russia’s invasion of Ukraine and rising tensions over Taiwan, a majority of the public wants a defense buildup, but few in the heavily indebted nation want a tax hike to pay for it.

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An expert panel charged with advising the government on the defense expansion submitted a proposal to the government Tuesday saying Japan needed to acquire counterstrike capability against an enemy attack, and should seek to stockpile “sufficient” quantities of missiles over the next five years.

The panel also called for bolstering defense research and infrastructure such as public evacuation facilities, as well as improving cyber defenses. Such ideas will be costly, and come as inflation -- at its highest in decades -- is already making feeding and fueling the armed forces more expensive.

The group called for spending reforms and a broad-based source of tax revenue to cover the costs. Kishida, whose support rate has fallen to its lowest level since taking office in October 2021, must soon pick from a range of unpalatable options.

Even if the government opts for more taxes to fund military spending, questions will remain over the type of levy. Increases in sales tax, for example, have repeatedly been shown to hurt Japan’s economy.

“He must go to the people with a proposal for increasing defense spending and providing the funds as a set, without dodging the issue,” said Takero Doi, a professor of economics at Tokyo’s Keio University. “If no stable source of funds is found within five years, the fiscal situation will be at risk.”

Kishida reiterated a pledge to fundamentally reinforce Japan’s defense capabilities at a summit with US President Joe Biden in Cambodia this month. Next year’s budget is set to be finalized by the end of the year.

Aggressive military moves by neighbors Russia, China and North Korea have added to support in Japan for a more powerful military. Those three nuclear-armed countries possess some of the world’s largest militaries, with a combined 5.5 million personnel, according to the World Bank. Japan’s military, known as the Self-Defense Forces, has an approximate strength of 231,000.

Constrained by its pacifist constitution, Japan has long relied on the US “nuclear umbrella” for security and kept its defense spending under an informal cap of 1% of gross domestic product -- still well over 5 trillion yen a year ($35 billion). Kishida’s ruling Liberal Democratic Party has called for that to be doubled to meet the 2% target set for members of the North Atlantic Treaty Organization within five years, which could place Japan among the world’s largest military spenders.

But Japan’s debt has ballooned to more than twice the size of its economy as it struggles with supporting its aging population, and social security already accounts for about a third of its budget.

Asked where the money for the national security plans should come from, 34% of respondents to a poll by the Nikkei newspaper and TV Tokyo in October said other areas of spending should be cut, 15% said bonds should be issued while only 9% favored a tax increase.

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Finance Minister Shunichi Suzuki told reporters Tuesday nothing had been decided on how to secure funding. Yoichi Miyazawa, who heads the LDP’s powerful tax panel, has said all options were being considered, including corporate tax and income tax. His counterpart from the party’s junior coalition party Komeito said in an interview that taxation was his least-preferred option, after spending reforms and bond issuance.

“Defending the country is a matter for all its citizens,” the expert panel, led by former ambassador to the US, Kenichiro Sasae, said in its report. “The government should make clear that a broad-based tax burden is necessary, and make efforts to gain understanding.”

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