TOKYO: Japan’s ruling Liberal Democratic Party (LDP) approves a plan to temporarily cut the sales tax on food items for two years, in a move to appease voters that is also feeding concerns over Japan’s fiscal health.
In a meeting held yesterday, the LDP’s General Council rubber-stamped a plan touted by Prime Minister Sanae Takaichi to cut the sales tax on food items and non-alcoholic beverages to 1% from 8%.
The plan is almost certain to receive cabinet approval, paving the way for it to be passed into law in a parliamentary session later this year.
The tax cut itself is set to be implemented from April, even as the specifics over how it will be funded remain unclear.
“We approved the plan unanimously,” General Council chief Haruko Arimura said following the LDP meeting, adding that the unanimous agreement was based on the understanding that there were concerns over funding and they hoped to see further clarity from the government on how it would be paid for.
Despite being relatively popular with the broader public, the plan to suspend the sales tax for two years has given rise to concerns over how the government plans to fill an over four trillion yen (US$25.4bil) hole in annual revenue.
The government also plans to provide cash handouts to lower-income households, effectively reducing their food sales tax burden to 1%, at an additional cost of about 600 billion yen.
In her announcement of the plan last week, Takaichi repeated her commitment to pay for the tax cut without issuing extra bonds so as to secure market confidence, but remained vague on how exactly it could be funded.
It appears she is expecting to find savings in the current government budget through a review of tax incentives and subsidies, or other non-tax revenues, as part of a larger overhaul of the way the government compiles its budget.
“Two years from now, I will take full responsibility for ensuring that the tax rate is restored to its original level,” Takaichi said as she announced her plan.
Qualms over how to pay for the tax cut have been heard not just from markets, but also from the opposition and even within Takaichi’s own party.
This was a marked difference from earlier this year during a snap election campaign, when almost all of the parties campaigned on a tax cut.
Notably, the tax cut has been framed as an interim measure that would tide households over until the establishment of a refundable tax credit system. — Bloomberg
