FOCUS: Japan Sees No Stable Funding for Costly Policy Plans

Tokyo, Nov. 1 (Jiji Press)–The Japanese government has yet to find specific ways to secure some 2.4 trillion yen in stable financial resources to fund both the planned elimination of the provisional gasoline tax surcharge and a free education program. Six ruling and opposition parties broadly agreed Friday to scrap the add-on levy for gasoline on Dec. 31 and for gas oil on April 1 next year Meanwhile, the ruling Liberal Democratic Party, its new coalition partner Nippon Ishin no Kai (Japan Innovation Party) and Komeito, which ended its coalition with the LDP last month, agreed Wednesday on details to effectively make high school education free and boost support for public schools. The scrapping of the gasoline surcharge is estimated to reduce tax revenue by 1 trillion yen per year, while the removal of the gas oil surcharge is expected to cut revenue by 500 billion yen annually. The six parties have agreed on the need for the government to review special tax cuts for corporations and reach a conclusion by the end of the year to make up for the expected revenue drop, and to consider raising taxes on extremely high-income earners as an option. If such steps are not enough to cover the revenue decline, the government is expected to temporarily cover the shortfall with nontax revenues and consider additional funding measures by the end of next year. A review of taxes related to automobiles, which was proposed in six-party talks as a way to secure funding sources, was not included in the broad agreement. The LDP-Nippon Ishin-Komeito deal on free education will require an additional budget of about 600 billion yen, up from the initial estimate of roughly 400 billion yen. Combined with the cost of making elementary school lunches free, a measure agreed upon by the two ruling parties, education-related costs are expected to reach approximately 900 billion yen. Reviewing special tax measures for corporations has been proposed as a funding source for this as well. Such special measures reduced tax revenue by 2.9 trillion yen in fiscal 2023, with measures to promote wage increases and encourage research and development accounting for 1.7 trillion yen. Massive cuts or the scrapping of these measures are all but certain to dampen corporations’ appetite for investment and wage increases. Finance Minister Satsuki Katayama said the review of the special tax measures “will not hinder the policy objectives of Prime Minister Sanae Takaichi’s administration,” and it is unclear how much the measures can be scaled back. “Talks on funding (for the two policy efforts) will be brought up together at the end of the year,” a senior Finance Ministry official said. “We can’t make progress unless they are considered together.” END [Copyright The Jiji Press, Ltd.]