Prime Minister Shinzo Abe on Tuesday ordered senior members of the ruling Liberal Democratic Party to work toward designating fresh food as the only category subject to lower tax rates when the government raises the consumption tax to 10 percent in fiscal 2017.
Meeting with senior LDP representatives, Abe said discussions by the ruling parties on the introduction of various tax rates need to be within the framework of the government’s social security and tax reform policy, according to the LDP’s tax panel chief Yoichi Miyazawa.
Under the policy, the increased revenue from the planned consumption tax hike will be used to finance pension and medical expenses. Abe’s instructions indicate his wish to limit the number of items subject to lower tax rates in order to minimize the impact on state finances.
Miyazawa told reporters he was asked by Abe to keep the total loss of revenue below ¥400 billion, as the government can secure the amount by forgoing measures to enhance social security.
The prime minister’s order comes as the LDP and its junior coalition partner Komeito remain apart on ways to ease the negative impact on consumer spending when the tax rate is raised by 2 percentage points to a uniform 10 percent.
While the LDP seeks to make fresh foods the only items subject to lower tax rates due to the difficulty of securing financial resources, Komeito has been requesting the inclusion of processed foods, which would require around ¥1 trillion in fiscal resources.
The ruling bloc is aiming to reach an agreement on the matter by Dec. 10, but talks between LDP Secretary-General Sadakazu Tanigaki and his Komeito counterpart, Yoshihisa Inoue, have yet to reach consensus.
On Tuesday, Tanigaki quoted Abe as saying the government “cannot give what it does not have.”
The prime minister also said introducing different tax rates requires “obtaining understanding from the public” so as to avoid confusing business operators and consumers, according to Miyazawa.
If items subject to lower tax rates are confined to fresh foods, the value of reduced tax revenue will be around ¥340 billion.
Finance Minister Taro Aso warned that if the scope of items subject to lower tax rates expands, it will lead to cuts in welfare spending. The government’s fiscal health is the worst among major industrialized economies, with public debt at more than 200 percent of nominal GDP due mainly to swelling social security costs amid the aging society.