Trilateral Discussion on Refundable Tax Credit

The leading coalition, Liberal Democratic Party (LDP) and Komeito, started policy talk on refundable tax credit (RTC) program with the Constitutional Democratic Party of Japan (CDPJ) on September 25th. The CDPJ has been advocating the system as a solution for helping households, focusing on helping low-income families. It is still unclear whether the discussion will be succeeded by next LDP president who will be elected on October 4th.


The RTC is a system of tax credit based on each income. When the government introduces 150 thousand yen of tax credit, the payment of a taxpayer paying 200 thousand yen will be reduced to 50 thousand yen. But another one who pays 100 thousand yen will not receive 150 thousand yen, and it will only be reduced to zero. In this case, the government will pay 50 thousand yen in the program of RTC.

 

The opposition parties have been requesting the leading parties to introduce reduction or abolition of consumption tax to protect families from price inflation. The LDP has been reluctant to it, because of protest from Ministry of Finance. In fact, the problem of consumption tax cut is regressivity, giving its benefit more to the rich people than low-income families.

 

Although the CDPJ upheld consumption tax cut for foods in the campaign promises for the Upper House election in July, the party also included RTC in it, which can be an alternate option for measures mitigating impact of price inflation. The leader of CDPJ, Yoshihiko Noda, advocated introduction of RTC in the integrated reform plan of tax and welfare system of Japan, when he was the prime minister.

 

The leaders of three parties had agreed on launching a discussion body for RTC earlier this month. The Secretary Generals of them had the first meeting on September 25th. “It is not about whether or not introduce, but for designing the system,” said CDPJ Secretary General, Jun Azumi, after the meeting. Asahi Shimbun reported that the CDPJ considers a plan in which the government distribute 40 thousand yen to every family, and then, introduce income tax cut varied with each annual income.

 

LDP Secretary General, Hiroshi Moriyama, promised that he would demand next administration to succeed the discussion. Among the candidates of LDP presidential election, Sanae Takaichi supports introduction of RTC. Shinjiro Koizumi understands necessity of sincere policy talks with the opposition parties. Although other candidates discuss other policies for supporting the families, it is likely for them to follow the multi-partisan discussion, seeking votes of Ishiba for the presidential election.

 

It seems, however, to be taking certain period of time to introduce RTC. The government needs to precisely grab the income of each family. Discussion of introducing My Number Card, personal identification card issued by the government, started when Noda administration proposed the integrated reform of tax and welfare. Securing financial resource for RTC is another requirement. It is unsure whether RTC becomes a quick remedy for the families.

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