Japan's Ruling Party Backs Costly Food Tax Cut Plan Amid Fiscal Worries

Japan's ruling Liberal Democratic Party has given its unanimous approval to Prime Minister Sanae Takaichi's plan to cut the consumption tax on food items from 8% to 1% for two years. The tax cut is designed to ease the impact of rising living costs on households, but it creates a revenue shortfall of approximately 5 trillion yen ($31.72 billion). This has intensified pressure on the government to explain how it plans to fund the shortfall.

Takaichi and other ministers have stated that 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.

The plan would also provide an additional 1% rebate or benefit payment to effectively eliminate the tax burden on food purchases. Implementation is targeted for April 2027 following debate in an extraordinary parliamentary session.