Japan to approve tax reform including food consumption tax cut

The Japanese government is set to approve a tax reform outline that includes a significant reduction of the consumption tax on food items from 8% to 1% for a two-year period starting in April next year. This measure is a centerpiece of the Takaichi administration's strategy to combat rising prices.

In addition to tax cuts, the reform introduces a ‘Worker Burden Reduction Support Grant’ beginning in 2027. This grant aims to support the working generation, with potential payments reaching up to 160,000 yen for certain eligible individuals, particularly those in households with children or those participating in social insurance.

While the outline emphasizes that funding for these measures will not rely on deficit-financing bonds, specific details on how to secure the required 5 trillion yen remain unconfirmed. Currently, only three out of 120 proposed tax incentive revisions have been identified to offset costs. The Ministry of Finance has noted that government spending is expanding due to growth investment and increased defense budgets, which may lead to higher bond issuance despite the government's stated policy.