Japan enacts fiscal policies to boost defence spending

Japan's military expenditure is forecast to grow at an unprecedented rate over the coming few years, according to Janes Defence Budgets. (Janes Defence Budgets)

Japan has enacted fiscal reforms to allow the government to collect funds that will be used to support a major increase in defence spending over the coming decade. The Basic Policies for Economic and Fiscal Management were approved by Japan's parliament on 16 June.

The policies state that financial measures will be introduced to support the defence modernisation programme highlighted in Japan's new defence policies, which were issued by the government in late 2022.

The measures identified in the policies will allow the government to raise funds through methods including selling assets, expenditure reforms, raising taxes, and utilising special government funding mechanisms. Under the measures, additional funds are expected to be available for the government from 2024.

According to the policies, the measures will support a “drastic strengthening of defence capabilities”. The term “drastic strengthening” is one of the key tenets of the new defence policies, which encompass three documents – the National Security Strategy, the National Defense Strategy, and the Defense Buildup Program.

The National Security Strategy outlines a requirement for Japan to, by 2027, spend 2% of its GDP on defence in response to growing strategic challenges in the Indo-Pacific. The Defense Buildup Program identifies a target for Japan to allocate, in total, about JPY43 trillion (USD303 billion) on defence between 2023 and 2027.

The Defense Buildup Program also indicates that the funding target will be met by introducing a series of financial measures including “reforms in government expenditure, using settlement surplus, the creation of defence buildup fundsutilizing non-tax revenues, and tax measures”.