Japan says it will reach 2% defense spending early -- but there's a catch
Takaichi government relies on counting supplementary budget
Japan's extra defense budget for this year includes 56.6 billion yen for missiles. (Photo by Konosuke Urata)
TOKYO -- The supplementary budget approved by Japan's cabinet on Friday will boost defense spending by over 1 trillion yen ($6.4 billion) to 2% of gross domestic product two years ahead of schedule, Tokyo says, but only after a change in how these outlays are counted.
The Defense Ministry proposed 847.2 billion yen in spending for the fiscal 2025 supplementary budget. Combined with public works and other government agencies' requests that can be used for security purposes, such as science and technology research, related spending in the budget rises to over 1 trillion yen.
Including the 9.93 trillion yen in the regular budget, defense-related spending for fiscal 2025 as a whole would reach about 11 trillion yen. The supplementary budget still requires parliamentary approval.
"This will take us to 2% of GDP," Defense Minister Shinjiro Koizumi said at a news conference Friday.
Prime Minister Sanae Takaichi said in an October policy speech that she aimed to reach the 2% goal in fiscal 2025 -- two years earlier than the fiscal 2027 date laid out in a multiyear defense buildup. She told U.S. President Donald Trump, who has called on Japan to pay more for its defense, that she would hasten the goal by two years.
But the achievement owes to a change in how the percentage is calculated.
Up to now, the government had used regular annual budgets as its basis. For fiscal 2024, Japan said defense-related spending was 1.6% of GDP. This did not include the more than 820 billion yen included in the supplementary budget for that year, which would have boosted the figure.
"It all depends on how related expenses are presented," said a senior Defense Ministry official.
Supplementary budgets had been excluded from calculation of the GDP ratio because they are supposed to be emergency measures with no guarantee of recurring every year.
They were intended to cope with unexpected events, like natural disasters or economic shocks, that occur after the start of the fiscal year. By contrast, defense spending requires careful planning and execution of long-term programs, making it unsuited for these ad hoc budgets.
"The prime minister's policy speech indicated the idea of bringing the total to 2% including supplementary budgets," a government official said about the reason behind the calculation change.
Supplementary budgets have deviated from their original intention. In recent years, governments have resorted to securing funds in the middle of the fiscal year to cover shortfalls in the regular budget, and the amounts have been increasing.
Supplementary budget outlays for the Defense Ministry averaged about 200 billion yen per year in the early 2010s. But the figure soared past the 400 billion yen mark in fiscal 2018, and since fiscal 2023, they have ballooned to over 800 billion yen.
"Different governments have used supplementary budgets to show their individuality," said Takahide Kiuchi, Nomura Research Institute executive economist. "There is less time for parliamentary deliberation than with regular budgets, and scrutiny is laxer."
Nominal GDP, which serves as the denominator in the GDP ratio calculation, can also affect the resulting figure depending on when the data comes from.
The Defense Ministry uses a fixed figure of 560 trillion yen -- the actual figure for fiscal 2022, when the current buildup plan was created. But nominal GDP increased to around 615 trillion yen in fiscal 2024.
If the total defense-related expenditures for fiscal 2025, including supplementary spending, are recalculated with fiscal 2024 GDP, the ratio comes to 1.8%, not 2%.
NATO calculates the percentage of defense spending for member countries using the latest GDP data for each year. France, Italy, Canada and others forecast defense spending to be around 2% of GDP for 2025. Japan's claim of achieving 2% two years ahead of schedule may face doubts from international partners.
The government also lacks a timetable for securing stable funding. The fiscal 2025 supplementary budget is expected to be funded by government bond issuance and increased tax revenue.
When the government set its 2% GDP target for defense spending at the end of 2022, it said it would cover over 1 trillion yen in funding by fiscal 2027 with tax increases. The timing of an income tax increase that was part of this has not been decided and is likely to be a point of contention for fiscal 2026.
Covering defense spending with JGBs "will lead to higher interest rates and a weaker yen, which will have a negative impact on people's lives," Nomura Research Institute's Kiuchi said.
Comments
Post a Comment