Japanese PM promises to end two-year food tax cuts

JAKARTA - Japanese Prime Minister Sanae Takaichi has promised to end the consumption tax cuts for food and beverages after two years. The tariff, which will be cut to 1 percent starting April 2027, will be returned to the original level, namely 8 percent.

According to a Kyodo News report quoted on Monday, June 22, the statement was made by Takaichi at a Lower House committee hearing on Monday. The issue is sensitive. Residents need relief because prices are still high. However, Japan's finances are also under pressure from the burden of large debts.

The LDP, led by Takaichi last week, proposed cutting the consumption tax rate on food and beverages to 1 percent for two years starting April 2027. This proposal differs from the February election campaign promise, when the LDP promised a zero percent rate for two years.

"I state clearly that we will return it to its original position two years after the implementation of the cut," Takaichi said when answering a question from Ken Tanaka, an opposition member of parliament from the Democratic Party for the People.

Tanaka warned that restoring tax rates after being cut would not be easy. The public could read it as a tax increase.

The LDP proposal was discussed in a cross-party national council on taxation and social security. According to Kyodo, the draft will be included in a provisional report compiled at the end of this month after months of discussion.

Takaichi previously said he wanted to implement the tax cuts "as soon as possible" after the interim report was submitted by the council.

The promise of tax cuts is not just for the LDP. Its coalition partner, the Japan Innovation Party, as well as many opposition parties, are also offering similar measures to help households cope with inflation.

However, Japan's fiscal space is not loose. Government bond yields have risen to their highest level in decades. Bond yields reflect the cost of government debt in the market. The yen is also still weak.

In such a situation, tax cuts could raise new concerns about Japan's fiscal health, which is the worst among the G7 countries.

The plan for a 1 percent tariff arises for technical reasons. If the tariff is cut to zero percent, retailers need more time to adjust the cash register system.

To keep the campaign promise that the tax burden on food effectively becomes zero, the LDP also proposes an annual cash assistance worth a total of 600 billion yen, or about 3.7 billion US dollars. That value is equivalent to the estimated revenue from a 1 percent tax on food.