The discussions around a proposed two-year zero consumption tax on food led by Prime Minister Sanae Takaichi are intensifying, with key debates expected to take place at a bipartisan 'National Conference.' The aim is to reach an interim conclusion by this summer on the implementation of this policy. However, several significant hurdles stand in the way, particularly concerning funding sources, the duration of the tax reduction, implementation timing, and the implications for the restaurant sector.

The most pressing issue is the funding source for the proposed tax reduction. Should the consumption tax on food products be eliminated, it is projected that the government would lose approximately 5 trillion yen in tax revenue annually, which is equivalent to the budget for educational expenditures. The consumption tax currently supports critical social welfare programs, including pensions and medical care, and any move to reduce this tax without a stable funding alternative could erode financial market trust, potentially leading to rising interest rates and further depreciation of the yen. The Prime Minister has firmly stated that the government will not depend on special deficit bonds to cover the lost revenue.

To secure funding, the Prime Minister suggests cutting back on subsidies and special tax measures for businesses. For instance, the subsidy budget for industries is set at 4.7 trillion yen for fiscal 2024, while special tax measures have resulted in a tax revenue loss of 2.9 trillion yen. Reducing these programs might provoke significant backlash from the business community, making it a complex task for the administration to navigate as they consider implementing the consumption tax reduction during an economically sensitive period.