June 26, 2026
TOKYO – If the consumption tax cut is pushed through without listening to the objections and concerns from various sectors, it would be no surprise if the “national council” were said to be nothing but a name.
At a working-level meeting of the National Council on Social Security, which comprises the government and the ruling and opposition parties, the ruling Liberal Democratic Party presented an interim summary proposal centered on lowering the consumption tax rate on food items from 8% to 1% for a two-year period starting in April 2027.
If this consumption tax cut is implemented, it will be the first such reduction since the Cabinet of then Prime Minister Noboru Takeshita introduced the consumption tax in 1989. Despite this being a major policy shift, the LDP presented the 1% consumption tax rate proposal a week ago, and the government and the ruling coalition are aiming to reach a decision within the month.
The opposition parties have criticized this stance as “placing the tax cut to 1% above all else.” At the national council, in addition to concerns about declining tax revenue raised by local governments, the business community and other sectors, there were also voices questioning the tax reduction proposal’s effectiveness to combat rising prices.
With rising import prices for energy and other goods, businesses have been forced to pass those costs along in higher sales prices. There is a possibility that prices will not fall by an amount equivalent to the tax cut. It is reasonable to avoid hasty decisions and engage in careful deliberations.
The interim summary proposal also includes cash benefits for low- and middle-income workers. Two rounds of payments are planned for 2027 and 2028, with each round expected to total ¥600 billion.
This is said to be equivalent to the annual tax revenue generated by a 1% consumption tax on food items, and the government claims that combining a consumption tax cut with cash benefits will “effectively reduce the consumption tax to zero.”
However, as the situation has changed drastically due to the turmoil in the Middle East, the LDP’s constant touting of its House of Representatives election campaign pledge in February — to accelerate discussions about a “two-year zero consumption tax on food items” — appears to be nothing more than an attempt to make the proposal seem consistent with the campaign pledge.
It is also a problem that discussions on alternative revenue sources are being put on the back burner. The government and the ruling coalition have merely stated that they will not issue deficit-financing government bonds, without presenting any concrete proposals.
There are also concerned voices within the LDP asking, “Once the rate is lowered, can it be restored to its previous level by the spring of 2029?” To the public, this will likely appear to be a de facto tax increase, and it is expected that calls to postpone the increase will grow stronger out of fear of the impact on national and local elections.
A party that fails to address the various negative aspects of the consumption tax cut cannot be considered a responsible political party.
Regarding refundable tax credits, the interim summary proposal stated that the cash benefits will first be provided starting in fiscal 2029, and noted that the overall framework will “continue to be examined.”
Refundable tax credits are intended to reduce the burden on the working-age generations and low- and middle-income earners. Discussions should be accelerated to make the system suitable for this purpose.