Takaichi Formalizes Food Consumption Tax Cut as Gambling Move to Recover Approval Ratings

▲ Japanese Prime Minister Sanae Takaichi

Japanese Prime Minister Sanae Takaichi has formalized a plan to temporarily lower the consumption tax on food from the current 8% to 1% starting in April next year.

According to local media, Prime Minister Takaichi formalized the plan for a two-year reduction in the food consumption tax during an extraordinary LDP executive meeting yesterday (July 30), stating her plan to process it through a Cabinet meeting early next month and an extraordinary parliamentary session this autumn.

The consumption tax, which serves as a funding source for Japan's social security costs, has been raised in stages since its introduction in 1989 and is set at a standard tax rate of 10%.

However, a reduced tax rate of 8% is applied to food products.

Prime Minister Takaichi pledged to lower the food consumption tax rate to 0% for two years to reduce the burden on the public's livelihood.

However, as it was pointed out that transitioning checkout systems at supermarkets and other stores would take a considerable amount of time if the food consumption tax were exempted entirely, an alternative plan to lower the rate to 1% has been pursued.

If realized, the reduction in the food consumption tax rate will mark Japan's first-ever consumption tax rate cut.

The Takaichi Cabinet plans to revert the food consumption tax rate back to 8% starting in April 2029, when the temporary two-year tax rate reduction period ends, while significantly lowering the tax burden by introducing an income-linked tax credit system.

For small-scale farmers who experience difficulties with tax refunds compared to large-scale food distributors, and for the restaurant industry which may face decreased sales as demand shifts from dining out to grocery shopping and cooking at home due to the tax rate cut, separate support measures will be prepared.

Following the LDP meeting, Prime Minister Takaichi emphasized to reporters, "Alleviating the burden of high inflation, taxes, and social insurance premiums is our most important task," adding, "In two years, I will take responsibility and securely revert the tax rate."

However, the tax cut policies, including the food consumption tax rate reduction and income-linked tax credits, are projected to require massive financial resources amounting to 5 trillion yen (approximately 44.5 trillion won) annually. Because Prime Minister Takaichi has not presented definitive fundraising measures, concerns have been raised both internally and externally that fiscal stability could be shaken.

Regarding the possibility of issuing deficit-covering government bonds, which has been discussed as a prominent funding method, she stated, "We will strive to review fiscal subsidies and secure non-tax revenues, avoiding reliance on deficit-covering government bonds."

However, criticism that the plan has low feasibility is emerging not only from opposition parties but also from within the ruling Liberal Democratic Party.

The Takaichi Cabinet's expansionary fiscal policy stance is also clearly evident in the process of drafting the Japanese government's budget bill for next year.

The Japanese government discussed budget request criteria for next year on July 30, announcing that it will abolish the request ceiling criteria—which previously limited investments in growth and crisis management, such as artificial intelligence (AI) and the defense industry, to a certain percentage of the previous year's budget—and boldly inject funds.

Analysts suggest this is a calculated move by Prime Minister Takaichi to accelerate the realization of her policy stance of supporting ordinary livelihoods through tax cuts and securing future growth engines through bold fiscal execution, thereby boosting her cabinet's approval ratings, which recently fell below 50% to hit a record low since the administration's launch.

However, local media outlets such as the Nihon Keizai Shimbun (Nikkei), opposition parties, and economic experts express concern that reckless expansionary fiscal policies, in the absence of sufficient financial "ammunition" to back Prime Minister Takaichi's policies, could trigger worsening economic conditions such as rising government bond yields and a weaker yen.

The situation where Japan's economic foundation is weakening—such as the Cabinet Office recently lowering its real gross domestic product (GDP) growth forecast for fiscal 2026 to 0.9%, down 0.4 percentage points from its late last year forecast—is also expected to act as a stumbling block to the realization of Prime Minister Takaichi's aggressive fiscal policies.

(Photo: Getty Images)

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