By Leika Kihara
TOKYO, Jan 19 (Reuters) – Japan’s expected snap general election is increasingly likely to lead to a cut in the consumption tax rate, as ruling and opposition party executives on Sunday stressed the need to do so to cushion the hit to households from rising living costs.
Japan levies an 8% consumption tax for food and a 10% rate on other goods and services, which is a key source of funding for rising social welfare costs in a rapidly ageing population.
Shunichi Suzuki, secretary-general of the ruling Liberal Democratic Party (LDP), pointed to the party’s earlier agreement with its coalition partner, Ishin, to aim at scrapping the 8% levy on food sales for two years.
“It’s our basic stance to sincerely achieve what’s written in the agreement,” he told a television programme on Sunday.
The yield on the 10-year Japanese government bond rose to 2.215% on Monday, the highest since 1999, reflecting market concern about the increasing chance of further debt issuance.
The Mainichi newspaper reported on Saturday that Prime Minister Sanae Takaichi, upon calling a general election next month, may pledge to temporarily scrap the 8% levy on food sales.
The main opposition Constitutional Democratic Party of Japan (CDP), which agreed to form a new political party with Komeito, will also call for a temporary cut to the tax rate, CDP Secretary-General Jun Azumi told the same programme.
Japan can fill the resulting revenue shortfall by creating a sovereign wealth fund that would seek higher returns through investments of various government-owned reserves, said Komeito executive Makoto Nishida in the programme.
Officials from other major opposition parties also called for lowering or eliminating the consumption tax.
Takaichi is likely to hold a news conference later on Monday to announce her intention to dissolve parliament and call a snap election in February, capitalising on her administration’s strong approval ratings.
Inflation has exceeded the Bank of Japan’s 2% target for nearly four years due largely to stubbornly high food prices, an issue that has led to growing calls from politicians for major spending and tax cuts to cushion the blow on households.
A cut in the 8% food sales levy would reduce government revenue by an estimated 5 trillion yen ($31.71 billion) a year, according to government data, straining Japan’s already tattered finances and heightening the risk of a bond sell-off as investors focus on Takaichi’s expansionary fiscal policy.
($1 = 157.6900 yen)
(Reporting by Leika Kihara; Editing by Paul Simao and Thomas Derpinghaus)
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