Young members of the Liberal Democratic Party are appealing for tax cuts. There are also voices calling for the current 10% consumption tax to be lowered to 5%. It appears that some party officials are responding to these moves.

General account tax revenue in fiscal 2022 will reach a record high of 71.1374 trillion yen for the third consecutive year. Much of the increased tax revenue comes from consumption tax revenue due to higher prices. It is difficult to say that tax revenues have increased due to the booming economy, and the dissatisfaction of the people who are suffering from successive increases in the prices of foodstuffs and other items continues to smolder. In fact, the cabinet’s approval rating is low, and many people view the Kishida administration’s economic measures with disdain. There will also be elections next year. It is understandable that young members of the Diet are anxious.

Easy tax cuts are not desirable. A cautious response is required, as it will put pressure on already struggling public finances and delay fiscal reconstruction, which is an urgent issue. At the same time, I think that one challenge is to reduce the consumption tax for a limited time.

Consumption tax is originally a flexible tax. In extreme terms, it can be raised or lowered depending on the situation at the time. However, since the consumption tax was introduced in 1989, Japanese people have only experienced tax increases. The government also seems to believe that consumption tax will be raised. If such a consumption tax is intentionally lowered, a new precedent will be created. The public’s view of the consumption tax, which is notorious as a bad tax, may change a little. If it becomes possible to operate it flexibly, there will be more situations where it can be used as a trump card for policy. Moreover, since the consumption tax is levied on all citizens, it is highly fair.

Lowering the consumption tax now will not stimulate consumption or stimulate the economy, but it will ease the burden on people struggling with rising prices.
Personally, I think the current trend of weak yen will continue for some time. In other words, prices will remain high and people will become more frugal. Although nominal GDP increases due to rising prices, the real standard of living of the people does not change much.
If the people are to enjoy the fruits of growth, tax cuts are the only way.
(Kei Kitajima)