Discussion over Consumption Tax Encouraged

Constitutional Democratic Party of Japan (CDPJ) decided that it would include partial and temporary abolition of consumption tax in their policies for the Upper House election expected in July. Its leader, Yoshihiko Noda, changed his stance which had been negative against erosion of the tax revenue. Other parties also consider consumption tax cut as a main plank for the election to deal with possible economic slowdown caused by tariff policy of President of the United States, Donald Trump.

The CDPJ has been against consumption tax cut, and upholding tax credits with benefits. Although Noda was reluctant to introduction of consumption tax cut, as long as appropriate fiscal resource has not found, party members demanded it as a main policy in the election to appeal to the voters.

 

Noda finally accepted their request with a notion that something should be done. The party will promise that consumption tax rate on foods is reduced to zero for a year. That temporary measure is considered as a transitional policy toward introduction of tax credits with benefits.

 

“It is the time of price inflation. I am afraid of situation in which smoke from kitchen in people’s houses disappear, due to Trump’s tariffs affecting world economy,” Noda said in his press conference. The comment of Noda was based on an episode of ancient Japan when Emperor Nintoku in 4th and 5th century introduced moratorium of tax as he realized people’s hardship through a landscape in which he could not see any smoke of cooking rising from houses.

 

Noda recognizes himself as the leader who decided current tax rate of 10 percent. In 2012, when he was the prime minister, Noda achieved an agreement with opposition Liberal Democratic Party and Komeito on integrated reform of social security and tax system, aiming at securing welfare budget for aged people with consumption tax hike. The agreement was succeeded by Shinzo Abe administration and Abe raised the consumption tax rate from 5 percent to 10 percent. Noda insisted on fiscal discipline even in the moratorium of consumption tax on foods.

 

Other opposition parties consider reduction of consumption tax. The Democratic Party for the People (DPP) asserts temporary consumption tax rate at 5 percent, while Japan Innovation Party (Nippon Ishin-no Kai) requires 0 percent on foods for 2 years. Japan Communist Party hopes 5 percent toward abolition of consumption tax, as Reiwa Shinsengumi demands immediate abolition.

 

Notable enough, there are voices in the LDP for consumption tax reduction, mainly among the lawmakers in the Upper House. They want two-year moratorium of consumption tax on foods. LDP’s coalition partner, Komeito, believes that tax rate on foods, currently set at 8%, should be reduced to some extent. The discussion over policies for election campaign seems to be a competition over which party can formulate viable scenario to introduce reduced consumption tax rate.

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