Japan ruling party tax chief exposes rift with Komeito over tax cuts

TOKYO (Kyodo) — The head of the tax reform panel in Japan’s ruling party said Wednesday envisaged tax cuts to ease the burden of inflation on households should be in effect for one year, drawing a contrast with its junior coalition partner that has signaled the duration should be longer.

The remark by Yoichi Miyazawa, who heads the tax reform panel of the Liberal Democratic Party, suggests a difficult road ahead for the ruling coalition with Komeito toward the year-end, as they need to hammer out details on the tax reduction plan, a hallmark of Prime Minister Fumio Kishida’s new economic package.

“Naturally, we have no choice but to limit it to one year,” Miyazawa said in an interview with Kyodo News and other media outlets, referring to the government’s plan to cut income and resident taxes by a combined 40,000 yen ($266) per person.

The comment contrasted with Makoto Nishida, head of Komeito’s tax reform panel, who said on Tuesday, “There is no need to determine in advance (that the duration) should be one year.”

Kishida is struggling to reverse a downtrend in public support for his Cabinet, which hit a fresh low in a recent Kyodo News poll, partly because rising prices have taken a toll on households while real wages are continuously decreasing.

Kishida has said the tax cut is designed to return a portion of an increase in tax revenues from recent years to the public. The government estimates that around 3.5 trillion yen will be needed for the tax reduction from next June.

For low-income households who are exempt from paying tax, the government plans to distribute 70,000 yen under the inflation relief package approved by the Cabinet last week. The scheme, set to begin before the year-end, is expected to cost around 1.1 trillion yen.

The LDP and Komeito are on the same page over the need to implement tax cuts, but differences remain. The dominant view within the LDP is that an income limit should be placed to exclude wealthy people, but Komeito appears cautious about setting such a cap.

During the interview, Miyazawa only said that it should be left for upcoming discussions.

Opposition lawmakers have criticized Kishida for going ahead with the tax cuts to dispel what some see as his “pro-tax” tendencies. Some of them argue that he is vague on details, including how long the tax cuts will be in effect, and call for a reduction in consumption tax, an idea rejected by Kishida.

Besides the temporary tax cuts to help people fight inflation, the government also plans to raise taxes to fund a substantial increase in defense spending in the coming years. The exact timing has yet to be determined.

Miyazawa said the tax panel will deepen the debate in the hope of reaching an agreement before the end of this year.