The ruling coalition on Friday approved an annual tax reform proposal for the next fiscal year starting in April, including an increase of the tax-free income threshold from ¥1.03 million ($6,610) to ¥1.23 million, after signing an agreement to “continue talks in good faith” with its partial alliance partner, the Democratic Party for the People, following a rocky week of negotiations.
Ahead of the Liberal Democratic Party and Komeito bloc’s approval, the three parties’ secretaries-general signed a confirmation letter stating that discussions will resume for implementing their Dec. 11 agreement with the “aim” to raise the threshold to ¥1.78 million in the next fiscal year.
“The proposal has been finalized with the amount of ¥1.23 million, causing the DPP tax chief to leave in the middle of our meeting (on Tuesday), which leaves us unable to implement the three-party agreement. To prevent that from happening, we confirmed that our talks will resume,” LDP Secretary-General Hiroshi Moriyama told reporters Friday morning.
The plea to restart talks came after Motohisa Furukawa, chair of the DPP's Tax System Research Council, walked out in protest of the ¥1.23 million proposal at a tax chiefs’ meeting on Tuesday.
Abruptly ending discussions after just 10 minutes, Furukawa told reporters “We are axing talks. (Their ¥1.23 million proposal) isn’t worth considering.”
DPP Secretary-General Kazuya Shimba, who had called the ¥1.23 million figure “an empty proposal without integrity that’s unacceptable,” said that the three parties’ policy and tax chiefs plan to reboot talks on Dec. 24.
The DPP has made challenging the ¥1.03 million threshold its signature campaign issue, arguing that it incentivizes residents to keep their annual earnings below that amount, thereby discouraging work.
The party proposed the figure of ¥1.78 million by multiplying ¥1.03 million by 1.73 times, which is how much the minimum wage has risen since the threshold was introduced in 1995.
The government is expected to submit the tax reform bills to the Diet session starting in January. As the LDP-Komeito bloc lost its majority in the more powerful Lower House in the October general election, it is seeking cooperation from opposition parties to collect enough votes to pass bills. The DPP and Nippon Ishin no Kai are both sought after as allies, with the former conditioning its votes on the ¥1.78 million threshold, abolishing the provisional gasoline tax and raising the annual income cap for dependent children with part-time jobs from ¥1.03 million to ¥1.5 million — the latter two of which are also included in the proposal.
“I’ve heard (from Moriyama) that although this is how the budget is compiled now, the DPP’s demands will be included from here on out," Shimba said. "I believe the talks are just getting started. It’s a provisional budget."
Asked about a scenario in which a figure satisfying the DPP doesn’t come up in future talks, Shimba only said “I believe that (the figure) will come up.”
Friday’s proposal also included raising corporate and tobacco taxes starting April 2026 — increasing revenue in order to nearly double the government's defense budget and ultimately spend 2% of its gross domestic product on defense by 2027. The decision to raise income tax rates, initially aimed for January 2027, was postponed and not included in the reform package for fiscal 2025.
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