13-05-2025
Calls for Consumption Tax Cut: Judgment of Each Party Is Being Questioned
With the House of Councillors election approaching this summer, opposition parties are increasingly calling for reducing in the consumption tax rate. During intensive deliberations at a session of the House of Representatives Budget Committee, opposition parties criticized Prime Minister Shigeru Ishiba, who is cautious about a tax rate cut.
Among upper house members of the Liberal Democratic Party who will defend their seats in the summer election, there are also simmering calls for a tax cut.
However, the Consumption Tax Law stipulates that the tax must be used as a source of funding for social security programs such as pensions, medical care and nursing care. If the consumption tax is reduced, there will be no way to avoid cutting social security services unless alternative fiscal sources are secured.
Discussions on a tax cut without addressing such crucial issues and only seeking to gain votes in the upper house election cannot be described as anything but irresponsible. The judgment of each party is being questioned.
With wage increases failing to keep pace with rising prices, many people are struggling to make ends meet. Measures to support people in need are necessary, but those steps should be considered temporary.
Also, the sharp rise in rice prices is a matter of agricultural policy and is not directly related to the consumption tax situation.
Linking the consumption tax to rising prices could confuse the direction of economic policy.
Consumption tax revenue totaled ¥23.8 trillion in fiscal 2024. Of this amount, ¥4.6 trillion has been allocated to local governments, leaving ¥19.2 trillion for social security expenses.
At the same time, total social security expenses amounted to ¥33.4 trillion. This means a shortfall of about ¥14 trillion if all the designated consumption tax revenue is allocated to social security. The remaining costs would have to be covered by other tax revenues.
Reducing the consumption tax at a time when there is a struggle to secure funding for social security expenses would require reducing various budgets.
However, the Constitutional Democratic Party of Japan is calling for cutting the consumption tax rate to 0% on foodstuffs for one year.
CDPJ President Yoshihiko Noda worked on raising the rate to 10% when he was prime minister, during the administration of the now defunct Democratic Party of Japan. His current shift to support a tax cut appears to have been forced by the CDPJ upper house members who will run in the election this summer. It is hard for Noda to avoid criticism for lacking consistency.
The Japan Innovation Party is calling for no consumption tax on foodstuffs for two years. The Democratic Party for the People is demanding a temporary uniform reduction of the tax rate to 5%. DPFP leader Yuichiro Tamaki has even said 'deficit-covering bonds should be issued' to cover the costs.
While the current working generation may temporarily benefit from the tax cut, issuing government bonds will ultimately lead to tax hikes in the future.
Putting aside the issue of securing fiscal sources and focusing solely on handout policies is not the way to steer the nation's politics.
(From The Yomiuri Shimbun, May 13, 2025)
