Allowance or Tax Cut

Trump’s tariffs generated political discussion for additional economic policy in Japan. The leading parties demand the government robust support for industries and households to avoid negative impact of Trump’s tariff policy through allowance or tax cut later this year. Just after passing annual budget bill in the Diet, Prime Minister Shigeru Ishiba has to embrace new issue to maintain his administration. 

When he was struggling with discussion over FY2025 budget bill in the Diet late March, Ishiba referred to a possibility of effective economic policies to deal with price inflation before this summer. Since it was obvious that the measure would be a campaign policy for the Upper House election in July, the opposition parties accused Ishiba, saying “Why not include those policies into FY2025 budget, if you need them?” Ishiba immediately backed off his idea, and he has been reluctant to discuss economic stimulus policies that would require supplemental budget.

 

It is the leading parties, the Liberal Democratic Party and Komeito, that are hopeful for policies to sustain Japanese economy. ”To defend people’s life from high tariffs, we need an unprecedently bold policy,” said Secretary General of LDP in the House of Councillors, Masaji Matsuyama, after a telephone talk over negotiation on the tariffs between Trump and Ishiba. Matsuyama is going to run for his reelection this July.

 

There are two types of policies under consideration in the leading parties. One is tax cut, which will be decided in the annual tax reform every December. Another is temporary allowance for each family, which requires supplemental budget.

 

The LDP prefers allowance, because it will take effect without waiting for annual discussion in the yearend. It can work as a campaign strategy for the Upper House election, if supplemental budget bill passes the Diet in this ordinary session. The discussion is converging into 50,000 yen for each family. The LDP is relatively negative for tax cut, because it is difficult to get back to the original tax rate, once it is introduced.

 

Worried about possible defeat in the election, Komeito demands more. Its Chief Representative, Tetsuo Saito, required allowance for each family with condition that tax cut would also be delivered later this year. “It will be insufficient for an allowance not to be led to a tax cut,” said Saito. Some Komeito lawmakers require 100,000 yen of allowance for each family. And tax cut is considered in consumption tax or income tax.

 

For Ishiba, both allowance and tax cut have to go through narrow path. Allowance needs supplemental budget. It takes about a month to formulate new supplemental budget. Then is will be discussed in both Houses of the Diet. Current Diet session ends late June. Time is running out. Ishiba is negative on both allowance and tax cut so far.

 

The opposition parties criticize the leading parties, regarding their discussion as a campaign policy. The oppositions would request to use budget for their own policies, such as raising threshold of imposing income tax or free education, if the government can afford to disseminate “helicopter money” to the voters before the election. Leading minority government in the Diet, Ishiba is caught in the middle between the leading coalition and the opposition parties.