Consumption tax cut is “an extremely cost-effective policy” Watanabe, professor emeritus of the University of Tokyo, gives his opinion in the Diet

Speaking at the House of Representatives Finance and Financial Affairs Committee on the 27th, Tsutomu Watanabe, professor emeritus of the University of Tokyo, called the consumption tax cut on food products an ``extremely poor cost-effective policy'' and pointed out that it is ``not appropriate'' in terms of alleviating rising prices.

The government has submitted a consumption tax reduction and support subsidy bill to the Diet that stipulates that the consumption tax rate on foodstuffs will be reduced from 8% to 1% for two years starting next April. During the deliberations that day, Mr. Watanabe expressed his opinion on the bill as an informant.

Watanabe pointed out that Japan's food inflation is "in fact outstanding" compared to other countries. The analysis analyzed that this is because the price difference with overseas prices was rapidly corrected after 2022. On the other hand, he said that wage increases were only progressing slowly, saying, ``The problem is not high prices, but low wages.'' ``The necessary measures are not to stop high prices, but to correct low wages.'' ``I understand that the consumption tax cut is a policy to alleviate high prices.In that sense, it is not appropriate.''

Regarding the rate at which changes in the consumption tax rate are passed on to retail prices, he points out that, based on past cases, it was almost 100% when the tax was increased, but it was around 60% when the tax was reduced in Europe. Of the 5 trillion yen fiscal burden resulting from this tax cut, ``3 trillion yen will go to consumers, but 2 trillion yen will go to sellers,'' he said, pointing out that ``if the purpose of the consumption tax cut is to compensate for the decline in consumer purchasing power, it is an extremely cost-effective policy.''