Focus on the Funding Sources for Consumption Tax Cuts and the Scale of Growth Investment
Concerns persist in the bond market regarding the fiscal sustainability of the Takaichi administration, which advocates a proactive fiscal policy stance. These concerns largely stem from uncertainties surrounding the funding sources for consumption tax cuts and the scale of the budget allocated to growth investment.
Prime Minister Takaichi has framed the consumption tax cut as a temporary bridge until the introduction of a refundable tax credit. As potential funding sources, she has cited reviews of subsidies and special tax measures, as well as non-tax revenues. We believe it is feasible to secure funding for reducing the consumption tax on food to zero per cent (approximately 5 trillion yen per year). Looking ahead to this summer, when the framework and design of the consumption tax cut are expected to be finalised, we anticipate that market concerns will ease gradually.
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Written by Yuko Iizuka, Economist, Asset Management One Co., Ltd