Japan ruling coalition divided over consumption tax cut

While House of Councillors lawmakers from the Liberal Democratic Party and its coalition partner, Komeito, are leaning toward a consumption tax cut ahead of this summer's Upper House election, LDP Secretary-General Hiroshi Moriyama and others are seeking a cash handout instead.

Speaking to reporters on Friday, Moriyama warned against calls for a consumption tax cut by stressing the importance of the tax as a source of funding for social security.

"What part of social security could we ask people to give up?" he said.

At a press conference the same day, Komeito leader Tetsuo Saito clarified that his party is considering lowering the tax rate for food items, while looking at a 100,000-yen handout proposal as a stopgap measure.

LDP members in the Upper House are welcoming Komeito's stance as their sense of crisis grows in the run-up to the Upper House election and the Tokyo Metropolitan Assembly election in June.

On the other hand, a midcareer LDP member whose Upper House seat will be up for grabs in the upcoming election criticized Moriyama as having "no sense of crisis." Moriyama, who has served as the state minister of finance and a senior official of the LDP's Research Commission on the Tax System, has strong connections in the Ministry of Finance.

"To win the elections, we have no choice but to cut taxes," the LDP member claimed.

At a House of Representatives committee meeting on Friday, the ministry explained that a cut in the consumption tax rate for food and other items to zero could result in a loss of around 5 trillion yen in tax revenue.

The ministry is concerned that even if the tax cut is implemented as a temporary measure, political confusion would be inevitable when the tax rate is raised again.

An LDP executive criticized lawmakers calling for a tax cut as "crossing the line." Prime Minister Shigeru Ishiba is vacillating between the LDP leadership and Komeito with LDP Upper House members.

At a meeting of the Upper House Budget Committee on March 28, Ishiba said that he had "no intention of categorically denying" the possibility of cutting the consumption tax. But on April 1, he retracted the remark, saying that a tax cut is "not appropriate."

However, he hinted at a possible tax cut again on April 5, saying in a television program that he would hold talks with party colleagues on the matter. According to informed sources, Moriyama secretly visited the prime minister's official residence on Tuesday night and pushed for a cash handout. Ishiba agreed to Moriyama's proposal at the time.

Still, a senior government official said that the prime minister has not yet taken sides and will make a final decision after examining related developments within the LDP and trends in public opinion.

The possible cash handout and tax cut are the same in that both would cost several trillion yen.

Keiichiro Kobayashi, a professor at Keio University who specializes in macroeconomics, said that a cash handout or tax cut should not be implemented before the economic impact of US tariffs becomes clearer.

"I think they should first consider measures such as loans to help small firms with financing," Kobayashi said.

[Copyright The Jiji Press, Ltd.]

Photo by Reuters