Political Decision on Tax Relief

The winner of negotiation over consumption tax relief was Komeito. Japanese government and the leading parties settled their dispute over categories for tax relief after consumption tax rate would be raised from 8% to 10 % in 2017, which resulted in including processed foods. It was Prime Minister Shinzo Abe who decided to hear the voices from supporters for Komeito.

In the sessions between Liberal Democratic Party and Komeito, LDP insisted on limiting the category for consumption tax relief to fresh foods including rice, fresh vegetables or raw meats and processed foods except confectionery and soft drinks. Komeito resisted LDP’s argument backed by Ministry of Finance and required to expand the category to all processed foods.

The negotiation was operated by the Secretaries General of both parties, Sadakazu Tanigaki and Yoshihisa Inoue. In the middle of sharp dispute on tax, they made a trip to Beijing for a meeting with Chinese lawmakers earlier this month, in which negotiation was expected to be making progress. But they did not reach any conclusion during the trip to China.

True negotiation was proceeding in Tokyo, while those party leaders were in Beijing. Chief Cabinet Secretary, Yoshihide Suga, secretly met with the leaders of a religious organization supporting Komeito, Soka Gakkai. “Working women or elderly people have shopping at convenience stores. It will be meaningless, if we do not apply reduced tax rate to processed foods,” told one of the Soka Gakkai leaders to Suga. Convenience stores in Japan mainly sell cooked foods, while supermarkets display unprocessed fresh vegetables, fruits, meats and fish.

LDP insisted on difficulty in saving fiscal resource for broader tax relief. MOF calculated that they could find annual ¥400 billion for the tax relief, which would cover only fresh foods. Extending it to processed foods and soft drinks required additional ¥600 billion. Abe administration decided to take care of the opinion in Komeito without clear vision for the resource. “There is a discussion how to take advantage of growth in tax income brought by Abenimics,” told Minister for Economic Revitalization, Akira Amari.

MOF does not take that option relying heavily on volatile economic future. More people embrace negative image on the fortune of Abenomics. Overwhelming reason for broad tax relief was to maintain political coalition with Komeito, which may distort structure of tax system of Japan.