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Japan Set to Approve Record-High Budget Amid Backlash to Soaring Defense Outlays

Japan’s upper house of parliament on Tuesday is expected to approve a record 114.38 trillion yen (874.77 billion U.S. dollars) budget for fiscal 2023 that begins in April, comprising record allocations for social security costs and controversial defense spending plans despite the country’s dire fiscal health.

A record 36.89 trillion yen (282.13 billion U.S. dollars), the largest amount ever, has been included in the budget for ballooning social security costs in a bid to deal with Japan’s rapidly aging population.

The government’s budget also includes a record 6.82 trillion yen (52.15 billion U.S. dollars) in defense spending, a 20 percent hike, for the first year of a controversial and unprecedented five-year spending plan.

This is part of the government’s plans to beef up defensive capabilities, with the broader five-year plan drawing staunch criticism from the public, opposition parties and scholars, in no small part due to the plan running contrary to Japan’s constitutionally-bound pacifist stance.

For the year from April, non-tax revenue will be used to fund the government’s defense outlays according to the budget, which is set to double from the county’s long-held cap of spending equaling roughly 1 percent of the country’s gross domestic product (GDP), to around 2 percent of GDP in the year starting April 2027.

From fiscal 2024 or later, meanwhile, a publicly-denounced hike in corporate and income tax, as well as an increase in tax on some consumer products, will be used to finance Japan’s contentious broader defense spending plans.

Reserve funds, typically used for emergencies and not needing parliamentary approval, will also be used to fund part of the defense outlays, adding to the controversies.

“Part of the unused reserve funds for fiscal 2022 will be treated as surplus money, which in turn will be used for defense spending,” Takuya Hoshino, a senior economist at the Dai-ichi Life Research Institute, was quoted as saying.

“If the government continues to allocate huge reserve funds for emergency use and divert part of what is left unused to future defense spending, it makes the flow of funds more complicated than necessary,” said Hoshino.

Public objections aside, opposition party lawmakers as well as economists have quizzed Japanese Prime Minister and leader of the ruling Liberal Democratic Party (LDP) Fumio Kishida to explain exactly why the pacifist nation needs to drastically build up its defenses and pay for it by hiking taxes.

The Democratic Party for the People, for example, has removed the support it had previously shown for the government’s fiscal 2022 budget, saying it is now opposed to plans to raise defense spending and hike taxes to fund it.

To fund the state budget, the government will issue 35.62 trillion yen (272.36 billion U.S. dollars) in bonds, adding to Japan’s national debt, which is more than double the size of its economy and the worst among industrialized countries.

Japan’s lower house of parliament, controlled by the ruling LDP-led coalition, approved the draft budget in February.

The budget is expected to be approved by the upper house on Tuesday.

Debate in the upper house on the budget has been a formality and its approval or not in the less powerful upper chamber will have no bearing on its enactment.