Latest news with #consumptionTax
Japan Times
7 days ago
- Business
- Japan Times
Komeito to propose sales tax cut on food, Yomiuri reports
Japan's junior ruling coalition partner, Komeito, will propose cutting the consumption tax rate for food items from 8% to 5% in a campaign pledge for the Upper House election slated in July, the Yomiuri Shimbun reported on Wednesday. The campaign pledge, to be announced on Friday, will also include a proposal to offer cash payouts to cushion the blow to households from rising living costs, the paper said. A Komeito official confirmed the report, saying the tax cut idea will be among proposals in the campaign pledge due on Friday. The official spoke on condition of anonymity as he was not authorized to speak publicly. The proposed stimulus plan will be funded by an expected increase in tax revenues instead of additional debt issuance, according to the draft obtained by the Yomiuri. Japan applies an 8% consumption tax rate for food and 10% for other items, with the proceeds mostly used to fund social welfare costs for a rapidly aging economy. A proposal to cut the tax rate from Komeito, which is a junior coalition partner of the Liberal Democratic Party, would add pressure on Prime Minister Shigeru Ishiba to offer more fiscal support to voters ahead of the Upper House poll. Ishiba and senior LDP officials so far have pushed back against calls from opposition parties to cut the consumption tax rate, arguing that doing so would worsen Japan's already tattered finances. Concern over Japan's huge public debt, which will become more expensive to finance as the Bank of Japan eyes further interest rate hikes, has been among factors that led to a surge in super-long government bond yields last month.
Reuters
7 days ago
- Business
- Reuters
Japan's ruling coalition partner to propose sales tax cut on food, Yomiuri reports
TOKYO, June 4 (Reuters) - Japan's junior ruling coalition partner, Komeito, will propose cutting the consumption tax rate for food items to 5% from 8% in a campaign pledge for the upper house election slated in July, the Yomiuri newspaper reported on Wednesday. The campaign pledge, to be announced on Friday, will also include a proposal to offer cash payouts to cushion the blow to households from rising living costs, the paper said. The proposed stimulus plan will be funded by an expected increase in tax revenues instead of additional debt issuance, according to the draft obtained by Yomiuri. Japan applies an 8% consumption tax rate for food and 10% for other items, with the proceeds mostly used to fund social welfare costs for a rapidly ageing economy. A proposal to cut the tax rate from Komeito, which is a junior coalition partner of the Liberal Democratic Party, would add pressure on Prime Minister Shigeru Ishiba to offer more fiscal support to voters ahead of the upper house poll. Ishiba and senior LDP officials so far have pushed back against calls from opposition parties to cut the consumption tax rate, arguing that doing so would worsen Japan's already tattered finances. Concern over Japan's huge public debt, which will become more expensive to finance as the Bank of Japan eyes further interest rate hikes, has been among factors that led to a surge in super-long government bond yields last month.
Japan Times
24-05-2025
- Business
- Japan Times
LDP holds meeting to let proponents of tax cut blow off steam
The Liberal Democratic Party held a study session on Friday in an apparent attempt to let proponents of a consumption tax cut blow off steam following the party's decision to forgo including the measure in its election platform. While some participants voiced calls for a tax cut, the of the LDP's Research Commission on the Tax System ended without a hitch in just an hour and 20 minutes, 10 minutes shorter than planned. The LDP leadership has decided not to include a consumption tax reduction in its campaign pledges for the upcoming Upper House election.
Japan Times
16-05-2025
- Business
- Japan Times
Don't overreact to the consumption tax debate
As Japan prepares for an Upper House election this summer, a, if not the, key issue in the campaign will be the consumption tax. Economic uncertainty in combination with rising prices are squeezing the budgets of households, businesses and the government. The focus of domestic debate to ease those pressures is the consumption tax. A growing number of parties and politicians are pressing for relief, most typically in the form of a reduction in the current levy — 10% for most items and 8% for food products. Proposals include across the board cuts, fixed temporary reductions for particular items such as food or gas, or even suspension or cancellation of the tax. The ruling Liberal Democratic Party and the government of Prime Minister Shigeru Ishiba remain committed to the current plan, however, while debating aid for households in the form of subsidies. The government's claim that it must be fiscally responsible is sound. Japan's government debt is substantial and cuts to the tax are more politically expedient than economic necessity. That does not mean that households do not need aid or assistance; rather, the case is for smart, targeted efforts that help those most in need without blowing a hole in the national budget. The consumption tax has weighed heavily on Japanese politics. It was first proposed in the late 1970s to ease financial strains as the provision of social services outstripped government revenues. That suggestion alone was enough, argue political analysts, to cost the LDP its majority in the 1979 general election. A 3% levy was eventually introduced a decade later in 1989 — after one false start two years earlier — and it was raised to 5%, the first in what was anticipated to be a gradual but steady increase in the tax. That increase contributed to the loss of the LDP's majority in the Upper House in 1998 and the resignation of then Prime Minister Ryutaro Hashimoto. The Democratic Party of Japan took power in 2009 on a platform that promised, among other things, a freeze on taxes. In 2010 then Prime Minister Naoto Kan proposed raising the tax rate to 10%, which yielded a crushing defeat for his party in the next election and the plans were abandoned. A 2012 agreement with the LDP, then in the opposition, to raise the consumption tax to 10% to help pay for burgeoning social services costs contributed to the DPJ's defeat in elections later that year. That agreement endured however and the consumption tax went from 5% to 8% in 2014. Yet even formidable Prime Minister Shinzo Abe twice delayed the scheduled hike to 10% during his second term in office out of concern for the electoral consequences. Finally, in October 2019 the consumption tax increased to 10% for most items, with food (and a few others) remaining at 8%. Meanwhile, financial demands on the government have mounted as society ages, prime ministers promise child care and defense budgets swell. Japan's government debt as a percentage of gross domestic product in 2023 was 195%, the highest share among major advanced economies. That is why government officials agree with Chief Cabinet Secretary Yoshimasa Hayashi, who warned last week that 'The government does not think it is appropriate to lower that tax rate,' noting that 'it's an important funding source for the social security system for all generations.' That position is a striking contrast — some say political suicide — when opposition parties are all calling for some relief in taxes. The Constitutional Democratic Party of Japan, the main opposition party, has proposed lowering the consumption tax on foodstuffs to zero for one year. Ishin no Kai wants to reduce the tax on foodstuffs to zero for two years and the Democratic Party for the People calls for cutting the tax to 5% across the board. Even Komeito, the junior partner in the ruling coalition with the LDP, wants some relief, although it hasn't endorsed a specific proposal. The LDP is divided, however. A substantial number of its members are worried about their political vulnerability. Sixty-nine LDP lawmakers signed a petition calling for eliminating the consumption tax on foodstuffs, and that combined with pressure from Komeito could yield a softening of the party's hard line. While there may be some political logic to the call for accommodation, — and other governments have done so — the party should not bend. Once reduced, it will be extremely difficult to raise — or more properly, restore — the consumption tax to its previous level and Japan's fiscal difficulties will be compounded. In the fiscal 2025 budget, the tax accounted for nearly one-third (32%) of government tax revenue. According to one estimate, eliminating the tax on foodstuffs would boost nominal and real gross domestic product by approximately 0.43% a year — but yield a tax shortfall of about ¥5 trillion ($33.8 billion). That does not mean that households don't need some form of help. Consumers are being squeezed. The Bank of Japan anticipates that prices will continue to rise, the product of labor shortages, disruptions to global trade resulting from the U.S. tariff policies and shortages of some products, like rice. But the virtuous cycle — in which rising prices lead to rising wages — that Japan has enjoyed in recent years is now threatened by that same uncertainty. The BOJ has lowered its forecast for the Japanese economy and has warned that the outlook could change further and some officials worry about the prospect of stagflation — a stagnant economy that suffers inflation nonetheless. While providing a stable source of revenue — such taxes are largely unaffected by economic cycles — the consumption tax weighs most heavily on low-income earners. Prime Minister Ishiba has acknowledged fiscal and political reality by noting that 'It's important to take generous measures for those who are truly in need while taking responsibility for the next generation.' Targeted measures are thus key, which rules out sweeping cuts in the consumption tax. Putting money in the pockets of those individuals and their families through subsidies, for example, may not provide economic stimulus — economists worry that payments would be saved, not spent — but they would ease the pain. Having lost its majority in Lower House elections last year, the government, the LDP and its junior partner Komeito, fear a similar outcome in the summer Upper House vote (or a worse outcome if Ishiba decides to call a snap double election). Relief for besieged consumers is important but so too is avoiding the image of pandering to voters. The public wants and needs a thoughtful government that rejects populism and focuses on the national interest — not just the need to win votes. A plan that balances the need to help households with attention to deficits will win that support. The Japan Times Editorial Board
Japan Times
08-05-2025
- Business
- Japan Times
Economists debate consumption-tax cut as Japanese politicians warm to the idea
Cutting the consumption tax is gaining ground in Japan as a possible way to counter the effects of U.S. tariffs, although a debate is still raging as to whether such a policy, long seen as a taboo, would actually do much to help households or the economy in general. Cash handouts have traditionally been the preferred way to quickly stimulate the economy during times of hardship, as they leave in place a fundamental pillar of government finance and ensure that collections key to old-age benefits are still made. But following the implementation of tariffs by U.S. President Donald Trump, reducing the consumption tax — which is much like a sales tax and is set at 10% for most items and 8% for food and beverages — has been suggested as a way to protect the economy's fragile recovery. Some economists argue that consumption-tax relief could be more effective in stimulating consumption than cash distribution, since people would not benefit from the policy unless they purchase something. Just pocketing the money is not an option. High inflation in Japan is mainly related to the increase in food prices, so it's easier to justify making those items nontaxable, Toshihiro Nagahama, executive chief economist at Dai-ichi Life Research Institute, wrote in a report last month. 'Spending on food is necessary for everyone, and it represents a larger portion of spending for lower-income households, so it could also help reduce the regressive nature of the consumption tax," he wrote. According to his estimates, eliminating the 8% consumption tax on food would increase Japan's economic growth rate by 0.4 percentage points. The government would need about ¥4 trillion to ¥5 trillion to fund the tax cut annually. If the government were to implement a cash-handout policy with funding equivalent to the hypothetical consumption-tax cut, the economic growth rate would be increased by 0.2 percentage points. Other economists argue that lowering the consumption tax would not be very effective, even though it might encourage people to spend more. If a tax cut is temporary, consumption is likely to increase while the cut is in effect. This just brings future demand forward, so consumption would likely dip afterward, said Yutaro Suzuki, an economist at Daiwa Securities. 'When you include an expected decrease in consumption after the tax-cut period, I think it probably wouldn't make a significant difference compared to the cash handout policy," he said. Suzuki also points out that it's unclear whether a tax cut would be introduced as an anti-inflationary measure or as more of an economic stimulus measure. 'The discussion around that point seems to be quite muddled. In terms of addressing the recent high prices, I think it would help reduce household costs temporarily,' Suzuki said. "In terms of using it as an economic measure to boost the economy, it doesn't strike me as a particularly effective approach." U.S. tariffs and election realities are pushing Japanese politicians more toward passing a consumption-tax cut, a move once seen as improbable. 'Given that many opposition parties are proposing policies to cut the consumption tax, the ruling parties must be thinking that they need to come up with similar moves; otherwise, they would lose again,' Suzuki said. The Liberal Democratic Party-Komeito coalition lost its majority in the Lower House in the general election held last October, and it needs to avoid more losses in the Upper House election expected to take place in July. The Constitutional Democratic Party of Japan, which is the largest opposition party and is led by former Prime Minister Yoshihiko Noda, is looking to make food nontaxable for one year. Noda is considered to be on the side of fiscal discipline. Nippon Ishin no Kai is proposing a cut for two years, while the Democratic Party for the People aims to temporarily lower the rate of consumption tax on all products to 5%. Two smaller opposition parties — the Japanese Communist Party and Reiwa Shinsengumi — advocate abolishing consumption tax altogether. About 80% of the LDP's Upper House members are now voicing support for a cut, and Komeito has said consumption tax relief is an option. Prime Minister Shigeru Ishiba, who heads the LDP, has expressed caution about reducing the consumption tax, questioning the effectiveness of such a move as it would benefit high-income households as well. And touching the rate of consumption tax has long been seen as taboo. Higher rates are especially unpopular with voters. Cutting the rate may win voter support, but the ruling parties have been hesitant, as revenue from consumption tax is crucial to covering the costs of social welfare programs. According to a survey by TV Asahi last month, only 30% of those polled said that a cash handout is necessary as a countermeasure for inflation and about 60% said it's unnecessary. A full 60% said they support a temporary cut in consumption tax.
