Abe eyes using boosted tax revenue to cover food exemption shortfall

by and

Staff Writers

Prime Minister Shinzo Abe indicated Wednesday that the higher tax revenues — which he attributed to Abenomics — may be used to cover a shortfall when food is exempted from the coming tax hike.

Such a decision, if made, would draw criticism from opposition lawmakers. The Abe administration has pledged to use only “stable, permanent tax revenues” to cover a reduced tax rate for food products when the government raises the consumption tax to 10 percent from the current 8 percent in April next year.

“How to use the increased tax revenue thanks to Abenomics will be discussed at the Council on Economic and Fiscal Policy,” Abe said during a Lower House Budget Committee session Wednesday. The council is a key economic advisory panel to the prime minister.

“We would like to discuss the issue with the ruling bloc to mull ways (to cover the loss),” Abe added.

In the past three years, tax revenues have exceeded initial government predictions — partly, if not mainly, thanks to Abe’s aggressive economic policies, which have centered on ultraloose monetary measures.

Compared with fiscal 2012, the combined tax revenues of municipalities and the central government is now projected to surge by ¥18.9 trillion, to ¥99.5 trillion.

However, Abenomics’ long-term effects remain to be seen, as the Bank of Japan, now headed by Abe appointee Gov. Haruhiko Kuroda, will eventually need to end this ultraloose policy at some point.

At the same time, social security expenses have been rapidly growing, further plaguing the already debt-ridden government.

How to finance the massive ¥1 trillion tax cut has been one of the key issues in debates between the opposition and ruling parties during the current Diet session, which began Jan. 4.

Opposition parties have slammed the special reduced tax rate for foodstuffs as pandering to voters ahead of the summer’s Upper House election.

They claim low-income households will continue to struggle despite the measures while higher-income households reap the benefits.

A tax reform outline compiled last month by the ruling bloc says the government will secure “stable permanent financial resources” by the end of fiscal 2016 to cover the revenue loss from the introduction of the special tax measures on food.

The government, so far, has secured just ¥400 billion by forgoing planned medical and nursing-care assistance to low-income households, leaving a remaining ¥600 billion that the government must find.

  • Jeff Ogrisseg

    What in the hell are you talking about? This is NOT a “tax cut.” It is a subjective tax INCREASE.

  • Shinjo

    I think the concept is that the 10% consumption tax has already been enacted, and that first its effectiveness was delayed and that second a portion of the enacted tax whch was to applied to food sold in non-processed/non-restaurant food has now been rescinded or cut, creating a shortfall in future expected tax revenues. The 10% rate is law; its effective date has not yet been reached and so the reduction to 8% is a cut.