A funny thing happened on the way to the consumption tax hike. The government, it appears, has lost its nerve.
Several years ago when the Liberal Democratic Party, with the urging of the Finance Ministry, adopted the previous ruling party's plan to increase the tax from 5 to 10 percent in two stages, it sounded like both a no-brainer and an inevitability. At the time, the resurgent LDP launched the easy-money policy known as "Abenomics," and for a while the economy picked up, so it wasn't difficult to convince the electorate that the tax hike was for its own good. However, when consumption sank after the first phase of the hike went into effect in April 2014, the government balked and postponed the second phase from October 2015 to April 2017. More significantly, the LDP's coalition partner, Komeito, promised its supporters during last year's Lower House elections that it would exempt food and beverages from the next phase.
So the LDP is in a tough spot. On one side, it is watching its public support dwindle due to various policies, including the tax hike, that people don't like and, on the other side, it's got the Finance Ministry, which says it isn't going to budge on the final move to 10 percent. As a result, the Finance Ministry has come up with a refund plan for lower-income consumers that no one seems satisfied with. But maybe that's the point.