Overview
- Japan’s Cabinet approved a ¥122.3092 trillion general account budget for fiscal 2026 alongside the tax reform outline on December 26.
- Defense outlays reach a record ¥9 trillion, while the Japan Coast Guard gets a record ¥297.1 billion including ¥22.3 billion to bolster Senkaku-area patrols.
- The reform raises the taxable-income threshold to ¥1.78 million, extends mortgage deductions, and abolishes the car environmental performance tax, cutting steady-year revenues by about ¥700 billion with income tax down ¥668 billion; ending the gasoline surcharge is separately estimated to reduce revenue by about ¥1 trillion.
- Public pensions are slated to rise about 2.0% in 2026 under the macroeconomic slide mechanism, implying a real-term decline versus projected inflation, with formal approval due in January.
- The government will seek public input from January 5 to February 26 on reviewing tax breaks and subsidies, as domestic parties divide over fiscal sustainability and China’s Foreign Ministry denounces the defense increase.