TOKYO (Dec 20): Japan's minority ruling coalition on Friday failed to secure support from a key opposition party for its tax reform plans, jeopardising Prime Minister Shigeru Ishiba's budget agenda for next year.

Without opposition support for the plans, which form the basis of next year's state budget, the ruling camp may struggle to get its budget and tax reform bills through parliament.

Japan's ruling Liberal Democratic Party and its small coalition ally Komeito said they agreed to lift the tax-free income threshold from ¥1.03 million (US$6,556 or RM29,574) to ¥1.23 million, the first change since 1995 to reflect rising living costs.

But the new threshold, included in the tax reform framework for the next fiscal year from April, is far short of the ¥1.78 million demanded by the opposition Democratic Party for the People (DPP).

"With the planned ¥1.23 million threshold, there is no way for us to support the state budget," DPP lawmaker Yuichiro Tamaki said on social media platform X on Friday.

Yoichi Miyazawa, chair of the LDP's tax system panel, told a news conference the ruling camp would continue discussions with the DPP.

Ishiba's ruling coalition lost its majority in a snap election he called for October, and it now needs the support of the DPP or other opposition parties to pass legislation through parliament.

The finance ministry calculated that hiking the threshold to ¥1.78 million would reduce tax revenue by up to ¥8 trillion, likely thereby adding to Japan's already huge public debt.

The LDP's Miyazawa said the coalition's proposed threshold hike would cut revenue by just ¥700 billion.

The tax reform plans will be approved by the cabinet as early as next week. Based on the tax plans, the government is set to draft a state budget by the end of this year.

The ruling coalition plans also include raising the country's corporate and tobacco taxes from April 2026 to fund more defence spending.

The step follows through on former Prime Minister Fumio Kishida's commitment to raise taxes to double defence spending to 2% of gross domestic product by 2027.

Source: Theedgemarkets