IMF representative backs food tax cut in Japan — The Japan Times

International Monetary Fund representative Rahul Anand supported Japan’s plan to temporarily reduce the consumption tax on food products to help households amid rising prices. As The Japan Times reports, the IMF’s assistant director and head of the fund’s mission to Japan called the approach a “very welcome step.”

The tax will be reduced for two years

On October 9, the Japanese government approved a bill providing for a reduction in the consumption tax rate on food products from 8% to 1%. The reduced rate is to apply for two years, starting in April next year.

The authorities also plan to introduce a payment program linked to income levels for low- and middle-income workers. Consideration of the bill in the lower house of parliament is scheduled for Tuesday.

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The IMF stressed budget neutrality

Anand warned against a deterioration in the fiscal situation, as Japan’s public debt is exceptionally high compared with other major economies. He positively assessed the Japanese authorities’ intention not to incur additional debt to finance the tax relief.

According to him, at such a level of indebtedness, the best support for households suffering from the rising cost of living is targeted, temporary and budget-neutral measures. Anand also drew attention to the risk of rising debt-servicing costs due to higher long-term interest rates.

The IMF representative noted that as Japan’s social security spending rises, it is important to build fiscal buffers and maintain the trend toward reducing the public debt-to-GDP ratio. He also said that the Bank of Japan is appropriately conducting monetary policy amid high uncertainty. If the yen weakens and this accelerates inflation, the central bank will have to raise its key rate, he said.