Japan PM Takaichi eyes cutting consumption tax on food to 1% from April
TOKYO (Kyodo) -- Japanese Prime Minister Sanae Takaichi on Thursday expressed her intention to seek a cut in the consumption tax rate on food and beverages to 1 percent from the current 8 percent for two years starting next April, according to ruling party officials, as households continue to struggle with high prices.
The tax cut plan, which would be coupled with cash handouts to low- to middle-income earners to effectively reduce the tax burden to zero, was unveiled during a meeting of ruling Liberal Democratic Party executives. It would be the first time that the consumption tax rate has been lowered since the system's introduction in 1989.
Takaichi directed senior LDP officials to accelerate preparations for the Cabinet to endorse the plan early next month, LDP Secretary General Shunichi Suzuki told reporters, adding that the party aims to pass related bills during an extraordinary Diet session likely to be convened in the fall.
"Realizing an effective zero consumption tax on food and beverages is the best option," Suzuki quoted Takaichi as saying when she explained her decision, which he said was unanimously approved by the LDP executives.
Amid already high government bond yields and a weak yen, the tax cut could further fuel concerns over Japan's fiscal health as the measure would create a gaping hole in funding for social security, with the loss of tax revenues reaching about 10 trillion yen ($61 billion) in two years.
Takaichi, who is pursuing expansionary spending to spur economic growth, has yet to propose a concrete source of revenue to make up for the shortfall, but Suzuki said the premier promised at the LDP gathering that the government will secure alternative revenue sources "without relying on deficit-covering bonds."
The LDP's junior coalition ally, the Japan Innovation Party, also agreed to Takaichi's tax cut plan and will cooperate on it when the two parties' senior officials hold talks, JIP Secretary General Hiroshi Nakatsuka told reporters.
Meanwhile, some LDP members openly expressed their opposition. Former Foreign Minister Taro Kono told reporters that there is "no guarantee" the planned tax reduction will lead to lower food prices and that they could "spike significantly" when the tax rate is restored to its original level two years later.
Yuko Obuchi, former LDP election strategy chief, has resigned as a senior member of an informal meeting under the LDP's research commission on the tax system in protest at the tax cut plan, sources familiar with the matter said.
She is known for emphasizing fiscal discipline. Her father, Keizo Obuchi, served as chief Cabinet secretary under the government of Noboru Takeshita, which first introduced the country's 3 percent consumption tax in 1989.
The LDP, led by Takaichi, scored a landslide victory in the House of Representatives election in February on pledges that included slashing the consumption tax rate on food and beverage products to zero for two years. The JIP and many opposition parties made similar promises at that time amid elevated prices.
But the ruling parties decided to change course and seek a cut to 1 percent after learning at a cross-party meeting about taxation and social security that adjusting retailers' cash register systems to a zero rate would require more time.
To fulfill the campaign pledge of a zero tax, cash handouts to low- to middle-income households would total an annual 600 billion yen, which is equivalent to the revenue from a 1 percent tax rate on food and beverage items.
With opposition parties arguing that a de facto tax rate hike eventually awaits the public because the cut is a temporary measure, the cross-party meeting, called the national council on social security, failed to reach a consensus following monthslong discussions, leaving it up to the prime minister to decide.
While Takaichi has vowed to reinstate the tax rate after two years, which may mean April 2029, it could become a politically risky move given that a House of Councillors election is slated for the summer of 2028.
The ruling bloc refers to the two-year tax cut scheme as a "transitional measure" until the new income-linked relief program for lower-income workers is introduced in fiscal 2029. The program was approved during the cross-party talks.
Japan's consumption tax rate has gradually increased, mainly to finance mounting social security costs as the population rapidly ages. The rate started at 3 percent, increased to 5 percent in 1997, and rose to 8 percent in 2014.
Since 2019, the rate has been set at 10 percent, but a reduced rate of 8 percent has been applied to food and beverage sales, excluding alcoholic beverages and dining out.
Article source: https://mainichi.jp/english/articles/20260730/p2g/00m/0na/023000c
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