TOKYO - The Japanese government has approved a bill to reduce the consumption tax on food from 8% to 1% for two years beginning in April 2027, while pledging to finance the measure without issuing deficit-covering government bonds, although it has yet to specify how it will cover the estimated 10 trillion yen cost.
The legislation, approved by the Cabinet, would temporarily lower the tax rate on food purchases to 1% and provide an additional benefit equivalent to the remaining 1 percentage point to working people on low and middle incomes.
Finance Minister Satsuki Katayama defended the proposal as the most effective means of delivering relief to households, emphasizing both the adequacy and speed of the support. "We believe this is the best approach in terms of providing sufficient and timely assistance, and we intend to explain these points carefully during parliamentary deliberations," she said.
The two-year reduction is expected to create a revenue shortfall of approximately 10 trillion yen, raising questions about how the government will reconcile household relief with its fiscal commitments. Katayama stressed that the administration would not rely on deficit-covering government bonds, citing the importance of maintaining market confidence, but postponed the announcement of specific funding arrangements.
Attention has consequently turned to government spending programs, particularly subsidies and publicly funded reserves, as potential sources of financing for the tax reduction.
A ministerial meeting was held to accelerate a review of subsidies and government funds, with Katayama criticizing the progress made by ministries and agencies in identifying unnecessary or ineffective expenditures.
"To be frank, I do not believe the reviews conducted so far have been sufficient at all. We need to step up our efforts," Katayama said.
The finance minister expressed dissatisfaction with the assessments undertaken by individual government departments and called for stricter scrutiny of whether subsidies deliver benefits commensurate with their costs.
The government also intends to examine the extensive reserves accumulated in public funds, which are projected to total approximately 7 trillion yen by the end of the next fiscal year. Funds that have remained unused for extended periods would be returned to the national treasury, freeing resources that could potentially help finance the proposed tax relief.
Preferential tax arrangements for small and medium-sized businesses and other beneficiaries will also face a comprehensive reassessment. Katayama said these provisions would be reviewed from scratch, with measures demonstrating limited policy effectiveness to be abolished.
The initiative signals a broader effort to redirect existing fiscal resources toward household support rather than expand borrowing. However, the government has not yet established how much revenue can realistically be recovered through subsidy reductions, the return of unused funds and the elimination of preferential tax measures.
With the proposed food tax reduction scheduled to begin in April 2027, the administration faces the challenge of identifying sufficient savings to support the two-year program while preserving investor confidence in Japan's public finances.
Source: TBS
