The Liberal Democratic Party and its coalition partner, the Japan Innovation Party, compiled its annual tax reform proposal Friday, including measures to raise the income tax threshold and use a levy that had helped fund reconstruction efforts to now fund a planned defense spending hike.
Reflecting revived cooperation with the Democratic Party for the People, the ruling coalition welcomed calls to raise the income tax threshold to ?1.78 million ($11,400), effectively securing the DPP¡¯s support in upcoming deliberations over the budget for fiscal 2026.
¡±The discussion was grounded in a citizen¡¯s perspective,¡± Itsunori Onodera, the chief of the LDP¡¯s tax committee, told reporters Friday. ¡°This tax reform is imaginative.¡±
On Thursday, the two parties agreed to a deal in the presence of DPP leader Yuichiro Tamaki and Prime Minister Sanae Takaichi, who signed it in her capacity as LDP chief.
The agreement marks the conclusion of a yearlong saga going back to the DPP¡¯s strong showing in last year¡¯s Lower House election, where the party had quadrupled its seats by championing the measure. It also shows significant prospects of deeper cooperation between the government and the DPP.
¡°Mission accomplished,¡± a beaming Tamaki said during a news conference Thursday evening after meeting with Takaichi.
¡°To be honest I didn¡¯t think we would go this far,¡± he said, voicing his gratitude for the prime minister¡¯s ¡°political decision.¡±
The agreement will take concrete form in the government¡¯s budget proposal for fiscal 2026 and a related bill on fiscal policy, set to be formally approved by the Cabinet on Dec. 26.
The raise will increase take-home pay for roughly 80% of contributors, reads the deal, which includes a set of measures to facilitate corporate investment and reduce a levy on automobiles and light vehicles.
Workers earning ?6 million a year would reap the highest benefit from the measure, securing a yearly tax abatement equivalent to ?56,000, the DPP indicated. Those earning less than ?1.78 million a year will be exempted from paying income tax.
Japan¡¯s average yearly income stood at ?4.78 million in 2024.
The minimum threshold was raised to ?1.6 million in the spring after a preliminary agreement between the LDP, its former coalition partner, Komeito, and the DPP in December 2024.
The measure will cause a total revenue drop of about ?1.8 trillion for the state coffers.
¡°The drop is painful, but the agreement is an extremely positive development that ensures political stability,¡± Finance Minister Satsuki Katayama told a news conference Friday.
Prior to Thursday¡¯s deal, the LDP, the JIP, Komeito and the DPP had signed a pact to take the income tax threshold to ?1.78 million on Wednesday.
For the DPP, the agreement comes in the wake of...
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