Japan’s ruling Liberal Democratic Party has signed off on a sweeping consumption tax cut championed by Prime Minister Sanae Takaichi. The plan would slash the consumption tax on food items to 1% from 8% for two years, supplemented by an additional 1% rebate or benefit payment that would effectively eliminate the tax burden on food purchases.

Fiscal Concerns

The tax cut creates a revenue shortfall of roughly 5 trillion yen ($31.72 billion), intensifying pressure on the government to explain how it plans to fund the shortfall. Takaichi and other ministers repeatedly said the government will not rely on debt issuance and instead seek to tap non-tax revenues, such as proceeds from state funds and foreign reserves as well as spending reforms.

The proposed tax cut comes as Japan faces swelling fiscal commitments, including support for a 370 trillion yen public-private investment strategy through fiscal 2040 and likely higher defence spending following revisions to Japan’s national security strategy.

Original reporting: Appleton, WI News Feed (HLL/CB) — read the source article.