10 trillion yen funding gap for consumption tax cut, tax break review yields only 100,000 yen a year
MacroGeopolitics
The focus is on how to raise the roughly 10 trillion yen in total funding needed for the two-year consumption tax cut being pushed by Prime Minister Sanae Takaichi. Under the plan, food and beverages would be cut to a 1% rate for two years starting next April, but internal documents reportedly compiled by the Ministry of Finance say the money would be found through a broad review of spending and revenue, including reworking subsidies and special tax measures and securing additional non-tax revenue. However, the abolition of special tax measures set out in the budget requests at the end of August covered only three items, yielding about 100,000 yen a year, while ministries and agencies are seeking more subsidies in their budget requests. The Bank of Japan's remittances to the national treasury, a pillar of non-tax revenue, are expected to fall sharply this fiscal year as rising interest rates widen unrealized losses on government bonds, and most of the surplus in the special foreign exchange account is already earmarked. Yoichi Miyazawa, the former chairman of the Liberal Democratic Party's tax commission and a advocate of higher taxes, said in an interview with Nikkei that the funding that can be secured by reviewing special tax measures and subsidies amounts to a very small sum, and that the situation must be watched on the premise that the rate will return to its original level in two years and further tax hikes are possible. Economic journalist Hiroko Ogiwara believes that tax hike advocates are using the shortfall in funding for the cut to force the issuance of deficit-covering bonds and pave the way for a future consumption tax increase.
