Mathias Cormann, secretary-general of the OECD, has expressed concern over the government’s plan to temporarily lower the consumption tax on food items to zero, calling it not cost-effective.
While acknowledging that “we fully understand the pressure that rising food prices place on households, particularly those with lower incomes,” Cormann said in a written interview on Tuesday that “a zero rate on food is a blunt and costly response.”
Prime Minister Sanae Takaichi’s administration plans to reduce the consumption tax on food items to zero for two years to cope with inflation.
The OECD has previously proposed raising the consumption tax as a way for Japan to secure revenue without increasing public debt.
Amid soaring crude oil prices due to the escalating situation surrounding Iran, prices for a wide range of daily necessities, including household goods and food, are rising.
Referring to the zero consumption tax plan, Cormann, who was visiting Japan, said, “It erodes the revenue base Japan urgently needs, and it actually disproportionately benefits higher-income households who spend more in absolute terms.”
“The better approach is well-targeted fiscal support to the households that actually need that support,” he said, adding, “That protects people effectively and at a lower overall cost to the budget, preserving fiscal sustainability.”
Cormann also said that Japan’s consumption tax rate, which stands at 10%, is very low compared to the average of about 19% across OECD member countries, calling for “a gradual increase over time.”
In response to soaring crude oil prices, the OECD is “stepping up work on energy security,” such as diversification and investment in clean and low-emission technologies.
“Japan is a valued and active partner in that work,” Cormann said. “I look forward to discussing it further during this visit.”