Photo/Illutration Maritime Self-Defense Force vessels participate in the international fleet review in Sagami Bay off Kanagawa Prefecture in November. (Takateru Doi)

The Kishida administration plans to break with nearly eight decades of fiscal tradition and fund its purchases of new destroyers and submarines through issuing government construction bonds, sources said.

The move would mark the first time Japan has leveraged bonds to acquire defense equipment since World War II ended.

It comes as debate intensifies over how to pay for Japan’s planned historic hike in defense spending, with lawmakers split over which controversial measures to fund the massive budgetary burden--tax hikes or bonds.

This latest move would significantly widen the extent of defense-related items paid for with national bonds from the infrastructure included in the previous plan. That involved issuing construction bonds to update aging housing facilities for SDF personnel and other facilities.

The government will mention its plan to finance the costs for Maritime Self-Defense Force vessels through construction bonds, which should total in the hundreds of billions of yen, in an initial budget proposal for fiscal 2023. The proposal is expected to gain Cabinet approval on Dec. 23.

Destroyers and submarines are typically operated for decades after purchase, the sources said. But construction bonds will be not used to purchase SDF aircraft, they added.

Japan has issued construction bonds in the past to construct roads and other infrastructure--improvements that benefit the public over generations.

The costs of procuring Japan Coast Guard vessels are also covered by construction bonds. That includes vessels patrolling waters off the Senkaku Islands, a group of uninhabited islands in far southern Japan also claimed by China, to fend off Chinese ships.

The Kishida administration’s decision to widen the scope of what the bonds cover comes amid growing calls from a segment of his Liberal Democratic Party lawmakers for using these bonds to procure defense equipment.

But the move is not risk-free for the government. If it starts to pay for too many items from its defense-equipment shopping list with this kind of debt financing, defense expenditures could quickly spiral out of control.

Successive postwar governments had opted out of issuing construction bonds to finance defense budgets based on the country’s bad track record. Prewar Japanese defense budgets ballooned with the unregulated issuance of bonds.

In 1966, Prime Minister Fukuo Takeda told the Diet that covering the cost of defense equipment with bonds is inappropriate because it can be destroyed anytime in combat, whereas public works projects create assets that will stand the test of time.

“Defense spending has a feature of consumption,” he said in explaining his government’s stance.

But Kishida’s government is now reversing that long-held position.

In doing so, officials cited the System of National Accounts, an internationally agreed upon set of bookkeeping standards that make it possible to compare spending across countries.

Under the guidelines, tanks and naval vessels fall under assets, not consumption.

Kishida has decided to spend 43 trillion yen ($326.38 billion) on defense over the next five years. That should push defense spending up to about 2 percent of gross domestic product in fiscal 2027.

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