Focusing on Refundable Tax Credit

The National Council on Social Security started substantial discussion on consumption tax cut and introduction of refundable tax credit for low-income families. In the hearing from organizations of business managers and labor union, they are more supportive for refundable tax credit than temporary tax cut for foods. The council built up its chape by participation of major opposition parties.

Consumption tax cut became a major issue in the campaign of Lower House election in February. Prime Minister Sanae Takaichi argued that her Liberal Democratic Party (LDP) would introduce refundable tax credit after two-year moratorium of consumption tax on foods. Although the LDP had been skeptical about refundable tax credit, Takaichi insisted on it as the people demanded measures to mitigate damages from current price inflation.

 

In the meeting on March 25^th, policy leaders of parties heard from representatives of business leaders and workers. Japan Business Federation (Keidanren) focused on benefits rather than tax cut. It hoped benefit for the people who really need help, or refundable tax credit for low-income families. Keidanren also requested clarification of fiscal resource for tax cut, if any, to maintain market’s credibility on economic policy of the government or for sustainability of social security system. Business sectors demanded consideration of impact of tax cut, including negative impact of tax cut for foods on restaurants, which may cause lesser customers, or downward pressure on prices of goods.

 

Japanese Trade Union Confederation (Rengo) is basically skeptical about tax cut, because it may give greater benefit to the people with high income. It has generally been said that consumption tax is crueler to the people with lower income than rich people. Rengo also indicated additional costs for small business to introduce new system adopted to new consumption tax rate, as well as difficulty of resuming tax rate after two-year moratorium.

 

Centrist Reform Alliance (CRA) and its Upper House bodies, Komeito and Constitutional Democratic Party of Japan (CDPJ), joined the meeting for the first time. While CRA and Komeito require permanent elimination of consumption tax on foods, CDPJ wants the tax cut for a year. However, they are basically supportive for refundable tax credit. Refundable tax credit was firstly proposed by Democratic Party of Japan, which is former body of CDPJ.

 

Those three parties related to CRA and Takaichi take close stance on introducing refundable tax credit. CRA introduced permanent consumption tax cut for foods as their main issue for the Lower House election, suddenly called by Takaichi. Their focus has been on refundable tax credit, because former party leader Yoshihiko Noda was the original proponent of the policy when he was the prime minister in 2012.

 

Takaichi is not very enthusiastic for the tax cut for foods, because she introduced it in the campaign policy to contain the oppositions’ appeal of consumption tax cut in the election. Takaichi, CRA, business leaders and labor union are all reluctant to tax cut and willing to have refundable tax credit. 

 

The National Council also set up a meeting by experts, headed by former president of Keio University, Atsushi Seike. They discussed mainly on refundable tax cut and agreed on necessity of introducing the system. It is likely that the discussion of the council will be focused on how refundable tax credit will be introduced.