Government lowers food consumption tax to 1% for two years, introduces benefit system for middle and low income earners

On the 8th, the government presented to the Liberal Democratic Party a draft outline for a food consumption tax reduction that will be implemented for a limited period of two years starting in April 2027. Based on a new benefit system for middle- and low-income earners that will be introduced in conjunction with the consumption tax cut, the government also includes a policy to provide cash benefits for ``six months worth'' in April 2029, when the tax rate will be raised from 1% to 8%. After coordination within the ruling party, a Cabinet decision was made on the 15th, and related bills will be submitted to an extraordinary Diet session expected to be convened in early October.

The government will reduce the current 8% consumption tax rate on food products to 1% for two years from April 2027 to the end of March 2029. In line with this, we will introduce ``income-linked benefits (tax credits with benefits)'' that will change the amount paid according to income. Named the "Employee Burden Reduction Support Fund," the government will provide the equivalent of a 1% tax rate (approximately 600 billion yen) in fiscal 2027 and 2028, making food consumption tax virtually zero.

The new subsidies will be targeted at middle- and low-income workers, and will be expanded in scale and introduced in earnest from fiscal 2029, when the consumption tax cut ends. The payment is scheduled to be made in the fall of each year, but in consideration of the fact that the burden on households will increase in 2029 when the tax rate returns to 8%, the payment will be made twice a year, with ``an amount basically equivalent to half a year'' being paid in advance in April. This response is based on the fact that it is difficult to restore tax rates once they have been reduced.

The support money is based on the previous year's income and children...