Japan PM Fumio Kishida Eyes Income Tax Cut, Benefits for Low-income Earners

The Yomiuri Shimbun
Prime Minister Fumio Kishida answers questions from reporters at the Prime Minister’s Office on Friday.

Prime Minister Fumio Kishida on Friday instructed senior officials of the ruling Liberal Democratic Party and Komeito to consider a limited-period income tax cut, in addition to benefits for low-income earners.

Kishida reportedly hopes the tax cut will be included in economic measures to be finalized in early November and implemented as early as spring.

The prime minister and the ruling parties also have begun making adjustments to postpone planned tax hikes aimed at increasing defense spending, until 2025 or later.

During a meeting attended by LDP Policy Research Council Chairperson Koichi Hagiuda; Yosuke Takagi, Hagiuda’s counterpart from Komeito; and heads of the parties’ respective tax system research commissions, Kishida requested that the parties consider measures to return a portion of tax revenue increases to the public coffers, including in the form of a reduction in income tax.

The tax system research commissions of both parties are expected to begin thrashing out specifics — including the scale of the envisaged tax cut — following an informal policy meeting of the government and ruling parties scheduled for next Thursday.

Regarding the period for the tax cut, Yoichi Miyazawa, chairperson of the LDP’s Research Commission of the Tax System, told reporters after the meeting: “Looking at the issue rationally, it will likely be a one-year period.”

Based on the ruling parties’ outline of a tax system revision set to be concluded in December aimed, the government will submit revision-related bills to the ordinary Diet session scheduled to be convened in January, with the aim of gaining Diet approval by the end of March.

The government intends to begin dispensing benefits to low-income earners next April. A source close to Kishida said, “We want to implement the tax cut as soon as possible [after the provision of the benefits].”

There are two potential approaches for the tax-cut: a fixed-amount cut, which would set an across-the-board figure, and a fixed-rate cut, which would impose a percentage figure based on an individual’s earnings. The fixed-amount approach will have greater proportional effect on people in lower tax brackets.

Meanwhile, the fixed-rate approach would entail capping cuts for high earners, leading some in the ruling parties to say that the fixed-amount approach is more desirable.

If a large-scale income tax were to be implemented, it would be the first time for such a cut to be introduced since the fixed-amount tax cut system was adopted in 1999 by the Cabinet led by the then Prime Minister Keizo Obuchi. That tax cut system continued until 2007.

Late last year, the government drew up a policy to secure a portion of funding aimed at bolstering defense capabilities in 2024 and beyond by increasing corporate, income and tobacco taxes.

Following the meeting, Hagiuda told reporters that the defense spending-focused tax hikes “won’t be carried out next year, as a matter of course.”

With tax revenues totaling an around record-high ¥71 trillion in the settlement of accounts for fiscal 2022, there is growing opinion within the LDP that the increased revenues will suffice to finance the strengthening of the nation’s defense capabilities for the time being, even without the planned tax hikes.