The Japanese government is considering issuing special bonds to achieve a substantial increase in defense spending with an eye to hiking taxes in the future to pay back the debt, sources familiar with the plan said Friday.
For the repayment of the borrowed money, raising the corporate or tobacco taxes would be among the options to ensure higher revenue, the sources said. Such bonds are treated differently from others because the government decides in advance how it will repay them.
Prime Minister Fumio Kishida is seeking to fundamentally reinforce the country's defense posture and boost defense spending, which has been capped at around 1 percent of the country's gross domestic product.
Work to compile a state budget will intensify toward year's end when a review of the national security strategy and key documents on defense policy will have been completed.
The ruling Liberal Democratic Party wants to boost defense spending to 2 percent or more of GDP, which is in line with the benchmark for North Atlantic Treaty Organization member states.
Japan's fiscal health is the worst among developed nations, with its debt more than twice the size of its economy. The yet-to-be-compiled state budget for the next fiscal year from April is expected to hit another record as spending will likely increase to rework the defense posture.
In the past, Japan issued similar government bonds for reconstruction in the aftermath of the 2011 major earthquake and tsunami that led to the meltdowns of three nuclear reactors at the Fukushima Daiichi nuclear power plant. The government decided to use tax revenue and proceeds from the planned sale of shares it holds for the repayment.
The government will discuss how much the country's defense spending should increase and how to fund it. Raising the corporate or tobacco tax is expected to meet opposition from the business community.