TOKYO - Prime Minister Sanae Takaichi announced that Japan will cut the consumption tax rate on food and beverages to 1% from April 2027, pledging to secure the necessary funding without relying on deficit-financing bonds and to restore the rate to 8% after two years.
Takaichi said she decided to proceed with the reduction after taking seriously the strong public support for a lower tax rate. She emphasized that the government would fund the measure without issuing special deficit-covering bonds in order to maintain market confidence.
"We take seriously the high expectations of the public," Takaichi said. "We will secure the necessary funding without relying on special deficit-financing bonds so that we can maintain the confidence of the markets. During the upcoming budget compilation process, we will assess tax revenue trends and respond to necessary fiscal demands."
The prime minister also rejected suggestions that restoring the food and beverage tax rate to 8% after two years could prove politically difficult because it would be perceived as a tax increase.
"I will take responsibility and ensure that the rate is returned to its original level after two years," Takaichi said.
She said political parties that participated in the national council on social security shared the understanding that consumption tax revenue serves as an important source of funding for the social security system.
"From the perspective of achieving fiscal sustainability and maintaining market confidence, I will take responsibility and ensure that the tax rate is returned to its original level after two years," she said.
The next challenge for Takaichi will be securing support within the ruling Liberal Democratic Party, where opposition to raising the tax rate again remains strong.
Resistance surfaced on July 30, when former Digital Minister Taro Kono publicly argued against the plan. LDP lawmaker Yuko Obuchi also formally resigned from a senior position on the party's Tax System Research Commission, which oversees discussions on consumption tax policy.
The LDP plans to reach an internal agreement before the Cabinet formally approves the proposal next week. The party is scheduled to hold a general meeting of all its lawmakers on July 31.
It remains unclear whether party members will accept Takaichi's explanation. One mid-ranking lawmaker predicted that the discussions would become highly contentious, saying, "It will be a major uproar."
Source: FNN
