Govt, LDP Decide Not to Implement Consumption Tax Cut as Countermeasure to High Prices, U.S. Tariffs

The Yomiuri Shimbun

16:00 JST, May 9, 2025

The government and the ruling Liberal Democratic Party decided on Thursday not to implement a consumption tax cut as a countermeasure to high prices and U.S. tariffs, senior government and LDP officials told The Yomiuri Shimbun.

However, there have been calls — not only from the opposition bloc, but also from the LDP and its coalition partner Komeito — for consumption tax cuts on food and other items with an eye on the House of Representatives election this summer. But the government has decided that it is not appropriate to reduce the consumption tax rate as a countermeasure to high prices, while it is difficult to find alternative sources of funding for social security measures.

Prime Minister Shigeru Ishiba met with LDP Secretary General Hiroshi Moriyama at a Japanese restaurant in Tokyo on Thursday evening. According to related sources, they agreed a consumption tax cut should not be implemented.

The law stipulates that the consumption tax revenue is to be used to finance social security measures such as pensions and medical care. If a consumption tax cut is implemented, there will be a shortfall of financial resources ranging from a few trillion to more than 10 trillion yen. In this regard, it is feared that the foundation of the social security system, which is increasingly important in an aging society, may be shaken. If deficit-covering government bonds are used to fill the shortfall, the burden will be passed on to future generations. The prime minister and government officials close to him have long argued that the consumption tax is an important source of revenue to support a social security system for all generations.

Some point out that a reduction in the consumption tax rate would benefit high-income earners more than others and that it would be inappropriate as a measure to help low-income earners who need immediate relief from high prices as it would require a certain period of time to implement the tax reduction. Some also questioned whether businesses would be able to make multiple system modifications in a short period of time to accommodate changes in the tax rate if the tax reduction were to be implemented on a temporary basis, such as for one year.

The Constitutional Democratic Party of Japan plans to include a zero consumption tax rate on foodstuffs in its campaign pledge for the upper house election, while the Japan Innovation Party and the Democratic Party for the People are calling for a reduction in the consumption tax rate. The Liberal Democratic Party decided that it is important to clarify its position as a “responsible party” in the face of opposition parties calling for consumption tax reductions while leaving aside the issue of financial resources.