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Japan’s ruling coalition failed to gain the support of a key opposition party, threatening Prime Minister Shigeru Ishiba’s ability to pass the 2025 state budget and tax reform bills through parliament.
Key Highlights
1. Income Tax Threshold Dispute
- Proposed Threshold: The ruling Liberal Democratic Party (LDP) and coalition partner Komeito suggested raising the tax-free income threshold from ¥1.03 million to ¥1.23 million, the first adjustment since 1995.
- Opposition’s Demand: The Democratic Party for the People (DPP) is pushing for a much higher threshold of ¥1.78 million to better address rising living costs.
- DPP’s Stance: "With the planned ¥1.23 million threshold, there is no way for us to support the state budget," said DPP lawmaker Yuichiro Tamaki.
2. Revenue Implications
- Proposed Hike Impact:
- LDP's plan: Reduce tax revenue by ¥700 billion.
- DPP’s demand: Estimated revenue reduction of ¥8 trillion, exacerbating Japan’s significant public debt.
3. Broader Tax Reform Measures
- The coalition’s tax reforms also include:
- Corporate and Tobacco Tax Increases: Set to begin in April 2026 to fund defence spending.
- Defence Spending Target: Doubling to 2% of GDP by 2027, a continuation of former Prime Minister Fumio Kishida’s commitment.
4. Legislative Challenges
- The ruling coalition lost its majority in the October snap election, leaving it reliant on opposition parties like the DPP to pass key legislation.
- Next Steps: The cabinet is expected to approve the tax reform framework next week, forming the basis for the 2025 state budget.
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