Japan Govt to Avoid Deficit-Covering Bonds for Food Tax Cut

Tokyo, June 26 (Jiji Press)–The Japanese government on Friday presented a funding plan for the proposed reduction of the consumption tax rate on food items from 8 pct to 1 pct for 2 years starting next April, stating that it will avoid reliance on deficit-covering bonds. The plan, presented at a working-level meeting of the suprapartisan National Council on Social Security, stipulated that the tax reduction will not rely on the bonds “to not undermine market confidence,” suggesting a review of subsidies and special tax incentives, and additional nontax revenues as alternative sources. The tax cut proposal was included in a related interim draft shown by the council’s head on Wednesday. The move to avoid the issuance of deficit-covering bonds follows a policy that Prime Minister Sanae Takaichi has consistently emphasized. Still, the funding plan presented this time did not specify concrete measures for securing financial resources, instead deferring the issue by stating that the government will reach a conclusion during the process of compiling its budget for fiscal 2027, which starts next April. The council has aimed to consolidate opinions on the tax cut plan by the end of this month, but due to a series of objections from opposition parties, there is no prospect of an agreement. According to the interim draft, “a finely tailored cash benefit program linked to income levels” with about 600 billion yen in financial resources, which is equivalent to the amount of revenue from a 1 pct consumption tax rate, will be introduced in a simplified form on a provisional basis from fiscal 2027. The move would effectively reduce the tax rate to zero for food items, the draft said. The benefit program and the tax cut will require a combined total of about 5 trillion yen a year in financial resources. Although local governments will lose about 1.6 trillion yen in revenue due to the consumption tax cut, the funding plan only said that the central government would “take appropriate measures to avoid disrupting local governments’ financial operations.” Compensation through state subsidies to local governments appears to be one possibility. In addition, a huge amount of permanent financial resources may be required for the full-scale introduction of the benefit program from fiscal 2029. The funding plan, however, did not go any further than saying that the resources would be secured through reviews of all expenditures and revenues, including subsidies and special tax incentives. The Takaichi administration plans many policies that are expected to increase expenditures sharply, such as growth investment and higher defense spending, which are its signature policies. It is still unclear whether the government will be able to secure revenue sources for the tax cut while avoiding the additional issuance of deficit-covering bonds. END [Copyright The Jiji Press, Ltd.]