Prime Minister Shigeru Ishiba’s government risks rejection of its annual budget if it doesn’t concede more ground to the Democratic Party for the People as it seeks a higher tax-free allowance, according to the small opposition party’s policy chief.

The DPP will continue to push for the ceiling on tax-free income to be lifted to ¥1.78 million ($11,500) and will not accept the ruling coalition’s current proposal, DPP policy chief Makoto Hamaguchi has said. He also largely ruled out a possible ramped-up government offer cited in a local media report.

"I don’t think we can agree to that,” Hamaguchi said in an interview when asked whether the DPP will give the ruling bloc the additional votes it needs to pass the budget if the tax-free ceiling is bumped up to ¥1.5 million without a commitment to keep raising the allowance or an agreement to scrap a gasoline tax.

Ishiba needs to secure passage of the annual budget to show he can run policy effectively with his minority coalition and shore up his leadership of the ruling party ahead of a summer election. The DPP has enough members in the Lower House of parliament to ensure Ishiba’s coalition can push the budget through.

Budget difficulties have spelled trouble for minority governments around the world in recent months, contributing to the fall of Canadian Prime Minister Justin Trudeau and French Premier Michel Barnier and the impeachment of South Korean President Yoon Suk Yeol after he declared a short-lived martial law.

While Ishiba’s coalition secured support from the DPP over an earlier spending package, ongoing talks stalled in December. The prime minister’s Liberal Democratic Party and its Komeito partner decided to lift the tax-free ceiling from ¥1.03 million to ¥1.23 million in December without a nod from the DPP. The opposition party has continued to argue that the ceiling must keep going up.

"It’s not about settling it at a particular level,” Hamaguchi said.

"We need to continue striving to raise the ceiling to ¥1.78 million,” he added. Raising the ceiling to ¥1.23 million would cut annual tax receipts by up to ¥700 billion, a far lower figure than the ¥8 trillion or so of lost revenue if the allowance is raised to the DPP’s target, according to the government.

Giving more ground to the DPP would further complicate the government’s efforts to balance its budget books in the upcoming fiscal year and rein in its huge debt burden, while potentially eroding support for Ishiba within his own party. Japan’s government debt load is projected at 249% of gross domestic product this year.

With the DPP refusing to accept the ¥1.23 million proposal, the ruling LDP and Komeito are also negotiating with a larger opposition group, Nippon Ishin no Kai, as they seek to expand their options. In return for its support, Nippon Ishin wants the government to make school education free for all students — another costly option.

A higher tax-free ceiling and free education would further worsen the nation’s fiscal situation at a time when it’s getting more expensive for the government to issue debt to fund spending measures. Last week, the Bank of Japan raised the benchmark interest rate to the highest level since 2008 and signaled further hikes to come.

Hamaguchi said the timing of the BOJ’s rate hike seemed too early. He thought the central bank should have waited for the conclusion of annual wage talks in March.

"It would have been better if they made that call when we could be sure that wages aren’t falling behind inflation,” Hamaguchi said.