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Japan to consider delaying defence spending tax increase to 2025 or beyond -source

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By Yoshifumi Takemoto

TOKYO (Reuters) – The Japanese government is looking into putting off a tax increase to fund extra defence spending by a year to 2025, a ruling party source with direct knowledge of the matter told Reuters said on Monday.

The coalition government agreed in December to raise key taxes to increase the defense budget, but stiff opposition among lawmakers effectively delayed a decision on when to implement the unpopular move.

The tax plan, following through on Prime Minister Fumio Kishida’s commitment to raise taxes to double defence spending to 2% of gross domestic product by 2027, had become bogged down in wrangling among lawmakers who objected to near-term tax increases that could hurt Japan’s fragile economy.

Kishida’s administration has said the tax hikes will kick in “at an appropriate time” in 2024 or thereafter.

The government’s long-term policy framework, expected for release later this week, will include language that allows the tax hike to be delayed until 2025 or later, the source said, confirming an earlier report by Kyodo news agency.

The delay would highlight challenges for Kishida who juggles the conflicting priorities of restoring Japan’s tattered public finances and addressing geopolitical risks from an assertive China and unpredictable North Korea.

Japan is struggling to secure funding sources for planned defence spending of 43 trillion yen ($309 billion) over the next five years, which could further complicate its aim of balancing the budget – excluding new bond sales and debt servicing – by fiscal year 2025.

($1 = 139.1600 yen)

(Reporting by Yoshifumi Takemoto; Writing by Tetsushi Kajimoto and Leika Kihara; Editing by Philippa Fletcher and Stephen Coates)

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