LDP Executive Calls for Food Exemption From Japan Tax Increase

Food and other basics should be exempted from a planned sales-tax increase, Hiroyuki Hosoda, a ruling party executive, said ahead of a general election called amid a recession.

Hosoda, deputy secretary-general of the Liberal Democratic Party, said the tax on exempted goods should be kept at 8 percent when the levy rises to 10 percent in April 2017.

“There are various arguments for food, other products, newspapers and books,” Hosoda said in an interview at party headquarters in Tokyo yesterday. While some in the LDP favor delaying the exemptions further, “it would be good to do this simultaneously, rather than having all taxes go up and then some come down,” he said.

Prime Minister Shinzo Abe this month pushed back the unpopular tax increase by 18 months after a hike in April triggered two quarters of economic contraction. Japan, backed by its biggest business lobby, has so far applied a flat rate. By contrast, European nations such as the U.K. soften the blow for consumers by setting low, or even zero, rates for essentials like food and energy for home use.

The tax increases are part of Japan’s effort to rein in the world’s largest debt burden and fund social security costs for its aging population.

Indefinite Delay

Abe has locked his party into the 2017 hike by saying he will remove a clause in legislation that permits a delay if the economy is weak. The main opposition Democratic Party of Japan says the increase should be deferred indefinitely, policy chief Tetsuro Fukuyama said in a separate interview yesterday.

“I have absolutely no idea,” Fukuyama said when asked whether the decision to raise the tax in 2017 was appropriate. “They have shown no basis for it.”

“Abenomics has resulted in an unexpected lack of export growth, an unexpectedly rapid fall in the yen, and an unexpectedly slow recovery from the sales tax increase,” Fukuyama said, adding that removing the clause allowing a further delay is “outrageous.”

A poll published by the Sankei newspaper yesterday ahead of the Dec. 14 election showed that 60 percent of respondents supported Abe’s decision to delay the tax and 50 percent opposed the decision to prevent any further delay. The DPJ is still considering whether it would favor introducing exemptions when the tax is next raised, Fukuyama said.

Komeito, the LDP’s junior coalition partner, is also calling for food to be excluded from the next tax increase to alleviate the burden on low-income households.

Even so, Hosoda said the exemptions won’t necessarily help soften the economic blow.

“There won’t be much positive effect,” Hosoda said. “We just expect that by doing this at a time when consumption is increasing, the harmful effects will be minimized.”

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