The ruling coalition agreement for introducing a lower tax rate on food products when the consumption tax is raised in April 2017 is a compromise that appears to have prioritized political interests over both the nation's fiscal sustainability and efforts to reduce the impact of the increased tax burden on low-income people.
The decision last weekend by Prime Minister Shinzo Abe's Liberal Democratic Party and its junior coalition partner Komeito to keep the current 8 percent rate on food and beverages, except for alcoholic drinks and dining in restaurants, when the consumption tax rate is hiked to 10 percent may be intended to ease the regressive nature of the consumption tax, which will proportionately hit poorer households more severely than wealthy ones. Low-income people spend a greater portion of their income on daily necessities such as food than do the wealthy. Many European economies that impose a value-added tax of over 20 percent have either reduced or eliminated taxes on such necessities, and a similar system may make sense for Japan as it raises the consumption tax to 10 percent — and possibly even higher in the future.
But many experts contend that the reduced tax rate on food will likely benefit the rich more than the poor because wealthy consumers typically spend more on meals. They say special allowances or other forms of tax breaks for low-income households would better serve the purpose of easing the impact of the consumption tax hike on them.