Parties Focus on Consumption Tax

The Upper House election was officially called on July 3rd. The parties started their election campaign toward the voting day of July 20th. As the consequence of targeted inflation policy by former administrations led by the Liberal Democratic Party and Komeito, price inflation is the greatest concern for the voters now. Each party focuses on economic policy to appeal to the voters. 

Several opposition parties uphold reduction or elimination of consumption tax rate to support families suffering from price inflation. The Constitutional Democratic Party of Japan (CDPJ) embraces 0 percent of consumption tax on foods as the top agenda among their campaign policies. The leader of CDPJ, Yoshihiko Noda, insists that the party can achieve the policy without issuing new Japanese government bond.

 

In the debate by party leaders at Japan National Press Club on July 2nd, Prime Minister Ishiba (the president of LDP) asked Noda about financial resource for the consumption tax cut to balance national budget. Noda proposed surplus in the governmental funds, foreign exchange fund special account and revision of special measures concerning taxation.

 

In the calculation by the CDPJ, 0 percent consumption tax cut on foods requires 5 trillion yen a year. Noda argued that his party found in February 7.8 trillion yen of surplus in the governmental funds. “While seventy percent of profits in foreign exchange (or purchase of foreign currency) is supposed to be included in the general account of national budget, the government has been shifting that profit to the general account by a hundred percent in the time of COVID-19,” said Noda. And he found that special purpose taxation for wage increase, for instance, could afford 0.7 trillion yen. Those resources can be used for consumption tax cut.

 

The Democratic Party for the People (DPP) set a target of halving consumption tax rate for all goods until growth of workers’ wage rises beyond price inflation. But the budgetary resource for that is not specific as the CDPJ indicates. Japan Communist Party (JPC) upholds temporary rate of 5 percent before eliminating it to zero. Reiwa Shinsengumi says that they can abolish consumption tax by raising other tax rate and issuing governmental bonds. Japan Innovation Party (Nippon Ishin-no Kai) rather focuses on reduction of payment for social insurance than consumption tax cut.

 

The LDP and Komeito propose distribution of 20 thousand yen of benefit to everyone and additional 20 thousand yen for a kid and low-income families, criticizing argument of consumption tax cut without viable resource irresponsible. In the debate at JNPC, the chief representative of Komeito, Tetsuo Saito, asked Noda about what is the policy for the time when the government resumes consumption tax rate, which effectively become a tax increase. Noda did not provide with a clear answer.

 

In the poll of NHK in May, 38 percent of responders hoped consumption tax cut, while 36 percent supported current consumption tax rate, followed by 18 percent for abolition of consumption tax. The people are divided over the choice of possible measures on price inflation, making the parties keen on this issue.

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