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Abe 'Scraps' Japan's Defense Spending Cap: Less Than Meets the Eye

 
 

There is considerable interest in how the Shinzo Abe administration in Japan will react to the Trump administration’s transactional approach to security issues, with both critics and supporters of the Abe administration looking at the direction in which Japan’s defense expenditures will be heading. Roger Wright addressed this issue in his essay in The Diplomat entitled “Abe Scraps Japan’s 1 Percent GDP Defense Spending Cap,” which opens with the following paragraph:

“On March 3, Japan’s Prime Minister Shinzo Abe announced to the Diet, with little accompanying fanfare, an official break with his predecessors’ policy of restricting defense spending to 1 percent of Gross Domestic Product (GDP). This break is notable for a variety of reasons and is a decisive step toward achieving the Liberal Democratic Party’s defense revitalization goals.”

Now, it may well be true that “we can expect Abe to raise the defense budget as high as he and his administration dare beyond 1 percent of GDP,” as Wright argues. But if and when he does so under the next Medium Term Defense Program (MTDP) for FY2019-FY2023, which is expected to be revealed by the end of 2018, the outcome should be the kind of gradual but steady rise that we are already seeing under the current MTPD rather than a dramatic departure from the past. Let me explain.

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First, the 1 percent ceiling on defense spending has been officially dead for three decades. Imposed in 1976 by the Miki administration, it was scrapped by the Nakasone administration in 1986. To repeat, there was no “official break” on March 3, as Wright claims.

True, defense spending did remain just under 1 percent of GDP through most of those three ceiling-free decades, but Wright grossly overestimates the role of the Ministry of Finance (MOF) in this history when he claims that it, “through its veiled bureaucratic processes, exercises particularly strong control over what gets funded versus what does not.” Note how little the budgetary allocation among ministries and agencies changes from year to year. This is also largely the case within ministries and agencies; the inter-service allotments ratio has barely changed over time despite changes in Japan’s strategic environment and defense posture, to give an example. The annual ceiling on budgetary requests from individual ministries and agencies has helped contain the overall national budget but has also severely constrained MOF’s ability to determine the allocation for specific budget items. Given the ability to make only marginal cuts, MOF has not been able to prevent the ministries and agencies from largely determining which items ultimately get funded as long as their respective overall budgets remain within the vicinity of their preceding year’s budgets.

There are ways to get around this. First, the cabinet could make a political decision to alter inter-ministerial and inter-agency allocation. After all, the SDF got significantly more than 1 percent of what was admittedly a much smaller GDP in the 1950s and early 1960s. Let’s take FY2017 and say that Abe dares to raise defense expenditures, at 5.1 trillion yen, from a projected 0.92 percent of GDP in the initial budget to 1.25 percent, pretty modest by international standards but still significantly above historically prevalent levels. That would require shifting 1.8 trillion yen in the 97.5 trillion yen overall budget to the Ministry of Defense from the other ministries and agencies. Now that may seem eminently doable — until you remember that debt service (23.5 trillion yen), the social security system (32.5 trillion yen), and transfers to local governments (15.6 trillion) alone account for 71.6 trillion yen of the total budget.

As a practical matter, Abe would have to take any shift out of the remainder, minus the 5.1 trillion yen already allocated to defense expenditures. That means taking effectively 1.8 trillion yen, or 8.65 percent, out of 20.8 trillion yen. And that’s before taking into account civil service expenditures (court personnel included) totaling about 3.8 trillion yen, which can be reduced only by attrition, as well as legally mandated expenditures and other sacred cows (5.3 trillion yen for science and education, 6.0 trillion yen for public works, 1.0 trillion yen for “food security”)  that have collectively kept the inter-service allotments ratio steady over the years. In a country without a strong “national security” lobby and an electorate that’s not particularly enthused by martial ideals, that would be quite difficult to say the least.

How about some more deficit spending then? Given the official policy goal of stabilizing and eventually reducing the massive national debt, this is a huge ask, particularly for a policy objective whose vested interests are limited to a narrow segment of Japanese constituencies. There are no Japanese Lockheed-Martins or Raytheons; military procurement is a relatively small fraction of the operations of most of the major players. And the majority of the Japanese public remains wary of extending Japanese military presence beyond the narrow realm of defense. Raising taxes for defense purposes would be an even more daunting task, as demonstrated by the difficulties that the Abe administration is encountering with executing the pre-legislated consumption tax hikes to fund social security expenditures.

If that were not enough, Abe has a very good political reason not to seek a dramatic hike in defense expenditures. On May 1, he issued a video message to the public regarding his desire to seek the enactment of a constitutional amendment by 2020 — most likely in time for the Tokyo Olympic and Paralympic Games. Strikingly, he abandoned the not-yet-official but authoritative position of his Liberal Democratic Party (LDP), which seeks a significant reworking of the pacifist Article 9. Instead, Abe decided to keep the existing two paragraphs of Article 9 and merely add a paragraph explicitly legitimizing the Self-Defense Forces.

This has led to favorable comments from key leaders of Komeito, the LDP’s junior coalition partner (as well as from the Nippon Ishin no Kai, a center-right party nominally in the opposition that is very much in sync with Abe) and much grumbling from within the LDP. This is important, because for reasons that require an essay of their own, Komeito and its Sokagakkai base are essential to the long-term viability of the LDP as the dominant force in Japanese national politics. As a practical matter, Abe will not be able to pass a constitutional amendment without Komeito approval, and some Komeito leaders remain skittish. It is extremely difficult to see Abe jeopardizing the tentative Komeito support, which he has bent over to secure, with a dramatic defense budget hike. Expect the defense expenditures hike in MTDP (FY2019-FY2023) to be much closer to its predecessor than Wright’s essay appears to suggest.

Then what was Abe’s announcement all about?

First of all, it was not exactly an announcement. It came not as a formal cabinet decision or official statement but in an answer to a question in the House of Counsellors Budget Committee. Similar sentiments were expressed earlier to the Trump administration, and there lies at least part of the answer.

I am not a mind reader, but many corporations and foreign governments have adopted the tactic of repackaging already made decisions to serve as sops for the Trump presidency. And the Trump administration has been adamant that U.S. allies pay a greater share of the upkeep for U.S. military assistance. What better way for Abe to respond than by dressing up what is most likely to be a modest breach of the 1 percent non-ceiling — already achieved in the FY2017 supplementary budget — as a landmark lift in response to the demands of President Donald Trump?

The author thanks Robert Dujarric and Corey Wallace for their helpful comments on this article.
Jun Okumura was formerly with the Japanese Ministry of Economy, Trade, and Industry and is now a visiting scholar at the Meiji Institute for Global Affairs (MIGA). He also tweets: Alternative Facts.
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