Japan Ruling Parties Agree Tax Plan as Possible Ally Objects
(Bloomberg) -- Japan’s ruling parties approved a tax reform plan for the coming year without securing an agreement with a key opposition party, raising the risk of further political gridlock for Prime Minister Shigeru Ishiba’s minority government.
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Ishiba’s Liberal Democratic Party and its junior partner Komeito signed off on plans for tax changes for the next fiscal year on Friday, despite lacking support from an opposition party. The parties need the support of the Democratic Party for the People to secure the majority needed to pass the plan and other legislation if they can’t find other allies in parliament.
“Sadly we were unable to reach a final agreement” with the DPP, said Yoichi Miyazawa, chairman of the LDP’s tax policy committee, speaking after the parties approved the plan. “We do expect further movements before next year’s budget is approved, but we plan on a solid response,” he added.
The ruling parties decided to raise the tax-free income ceiling to ¥1.23 million ($7,830.8), from ¥1.03 million, according to the plan released by the ruling parties’ tax committee. With the change, tax revenue will likely decline by ¥600 billion to ¥700 billion, according to Miyazawa.
Pushing up the ceiling is a key policy initiative of the DPP, but the proposed amount falls short of its demand of ¥1.78 million, a situation that earlier prompted the opposition party to suspend talks with the ruling coalition.
The minor opposition party will still continue discussions with the ruling parties from here, according to senior DPP official Kazuya Shimba. A three party tax chief meeting is scheduled for Tuesday, he said.
The failure to secure DPP support suggests that Ishiba’s position will remain precarious as he struggles to get enough parliamentarians to sign off on his budget for next year. A recent opinion poll conducted by Sankei showed Ishiba’s disapproval rate outweighing his approval rating for the second consecutive time, highlighting the political challenges he faces.
The ruling parties’ tax plans for next year also includes a commitment to raising tobacco and corporate taxes in April 2026 to finance increased defense spending. Since Ishiba’s predecessor Fumio Kishida pledged a major jump in funds for improving defense capabilities in 2022, the government has struggled over how exactly to secure the money needed. The ruling parties again delayed deciding when to raise the income tax to fund defense spending.
Other key elements of the tax reform plan include:
Raising the maximum monthly contribution limit for a tax-deductible defined-contribution pension plan (iDeCo)
Allowing workers aged 19-22 to earn up to ¥1.5 million annually without increasing their parents’ tax burdens
Reviewing car-related taxes, including vehicle and fuel taxes
Amid uncertainty over whether they can secure DPP’s support, the ruling coalition has also initiated talks with other opposition parties. That includes the Japan Innovation Party, which holds 38 seats in the lower house. Their cooperation would be enough to let Ishiba get the budget through parliament. The Innovation Party has called for making high school tuition free, regardless of parental income levels.
Earlier this week, Ishiba successfully passed an extra budget to fund his ¥21.9 trillion stimulus package, securing support from the Innovation Party and the DPP in exchange for promises to consider their demands. Those considerations included raising the income tax ceiling and making high school tuition free.
--With assistance from Akemi Terukina.
(Updates with ruling party tax chief comments, additional background.)
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