National Council: Is the Environment Right to Allow Consumption Tax Cuts?

Editorial

15:35 JST, March 26, 2026

At the government’s national council on social security, discussions have begun on “refundable tax credits,” a system that combines income tax cuts with cash benefits.

This would be a major tax system reform. Discussions must proceed carefully to ensure public understanding.

The first meeting of the expert panel, established under the national council, was held. The 12-member panel is mainly discussing the refundable tax credits. There was reportedly broad consensus at the first meeting on the need to introduce the system.

Refundable tax credits are a system that provides cash benefits to middle- and low-income earners who cannot fully benefit from tax cuts, while also reducing taxes by deducting a fixed amount from income tax.

As soaring prices become prolonged, the aim of broadly alleviating the burden on middle- and low-income earners regardless of the amount of their tax payments is understandable. If the system is to be introduced, it should be easy to understand.

However, there are many challenges. The government has considered introducing refundable tax credits in the past, but abandoned the idea because it was difficult to accurately assess income levels, which are the basis of the tax reduction or cash benefits.

This time, the government needs to thoroughly discuss how to determine the income of its citizens. Securing the financial resources needed is also a critical point of discussion.

Meanwhile, doubts are beginning to grow regarding the effectiveness of Prime Minister Sanae Takaichi’s proposal to reduce the consumption tax rate on food items to zero for a two-year period as a “stopgap” measure until this new system is introduced.

With the United States and Israel attacking Iran, crude oil prices are soaring. Price increases for petroleum products and other goods are also expected to be unavoidable. Under such circumstances, even if the consumption tax is reduced, food prices are highly unlikely to fall by an amount equivalent to the tax cut.

In addition, there are voices in the retail industry saying that the tax cut would require system upgrades and calling for a preparation period of over one year following the legislative revision. In that case, even if the legislative revision is realized during the extraordinary Diet session this autumn, the tax cut would not take effect until autumn in 2027 or later. This would negate any immediate impact.

A joint survey conducted by The Yomiuri Shimbun and the Japan Institute of International Affairs asked respondents which areas they believed should receive increased budgets. The results were “medical care” at 43%, followed by “pensions” at 40% and “nursing care” at 36%.

This likely reflects the fact that many people are anxious about whether social security services can be maintained amid worsening fiscal conditions.

If the consumption tax — the financial source for social security services — is reduced, fiscal conditions for social security will face even greater difficulties. A situation must be avoided in which the leader of national politics clings to her own views that she promoted during the House of Representatives election, thereby exacerbating the public’s anxiety about their livelihoods.

(From The Yomiuri Shimbun, March 26, 2026)