Prime Minister Sanae Takaichi announced a plan at an extraordinary meeting of Liberal Democratic Party executives Thursday to lower the consumption tax rate on food and beverages to 1% for a two-year period starting next April.
The decision came despite opposition party criticism and concerns among her fellow LDP members about how lost revenue from the reduction, totaling ¥5 trillion ($30.6 billion) annually, would be covered.
Much of the consumption tax revenue is used to help fund not only national government initiatives, but also local government social welfare programs.
However, the government will not issue deficit bonds to finance the cut.
“The prime minister expressed the view that in order to secure market confidence, it’s essential to ensure funding sources without relying on deficit-covering government bonds,” LDP Secretary General Shunichi Suzuki told reporters after Thursday’s meeting.
The prime minister has instructed party leaders to first build intraparty consensus, with the goal of having the government reach an agreement by early August on steps needed to amend the consumption tax law.
The plan is to temporarily reduce the food and beverage consumption tax from the current 8% to 1% and introduce a benefits system that provides ¥600 billion annually to families in need, thus achieving the net-zero total consumption tax reduction that the LDP pledged to enact.
The tax reduction being touted by Takaichi is a temporary two-year measure to provide low- and middle-income families with financial relief until a separate benefits system can be introduced in 2029.
But finalizing the details of the revision amendment, and getting it passed in parliament this fall, could prove extremely problematic.
Some LDP members have voiced opposition to the plan, which Takaichi decided after the suprapartisan National Council on Social Security’s working group on the issue failed to agree earlier this week on funding measures for the proposed cut.
Asked about the opposition within the LDP, Suzuki said there were a wide range of views in the party that would be consolidated.
“Even if debates are heated, our goal is to reach a unified conclusion,” he said.
Many opposition parties, except the two-member Conservative Party of Japan, are also against the measure, however. Takaichi will need at least two other votes to back the amendment bill in the Upper House where the LDP and its coalition partner, the Japan Innovation Party — also known as Nippon Ishin no Kai — lack a majority.
