Prime Minister Fumio Kishida said Friday that a 40,000 yen ($266) tax cut per person will come next June, expressing hope that it will support Japanese households struggling to cope with waves of price hikes and slow wage growth.
For low-income earners, exempt from tax payments and particularly hard hit by inflation, the government will make cash handouts of 70,000 yen per household, Kishida said. The payouts will likely begin earlier than the tax cut, possibly by year-end.
The plan is part of government efforts to return some of the increase in tax revenue over the past two years to residents and will go into an economic package the Cabinet is scheduled to formalize on Nov. 2.
The envisaged tax cuts -- 30,000 yen for income tax and 10,000 yen for residence tax -- and cash handouts are expected to total 5 trillion yen.
"When wage growth has not kept pace with inflation, it's fitting to cut income and residence taxes to directly support people's disposable incomes," Kishida told a meeting with ruling party executives at his office.
"If the situation is left as is, the country may slip back into deflation," he said, pledging that the government will continue to maintain support until the trend of inflation outpacing wage growth is reversed.
The Liberal Democratic Party and its junior coalition partner, Komeito, will work out details toward the end of the year when the government draws up a tax reform plan for fiscal 2024 from April.
Japan's inflation has shown signs of easing in recent months as the impact of surging import costs for energy and raw materials wanes. But rising prices of everyday goods are already weighing on household sentiment, despite private consumption supported by pent-up demand after the removal this spring of antivirus curbs.
The inflation-relief package will include subsidies to reduce utility bills for households and other steps aimed at allowing the economy to ride out the current squeeze.
The tax cut program will also apply to a taxpayer's dependents, such as spouses and children. If a taxpayer has two dependents, the family's tax burdens will be cut by 120,000 yen in total.
Still, wealthy taxpayers will likely be excluded, sources familiar with the matter said. The government may also increase payouts for child-rearing families.
Kishida is scrambling to reverse a fall in public support for his Cabinet, partly blamed for the cost-of-living crisis.
Critics question whether tax cuts will be effective as a quick inflation-relief measure when household budgets are already tight.
Opposition lawmakers, meanwhile, have criticized the government for doing too little, too late.
Kishida has ruled out cutting consumption tax to ease the pain of inflation felt by households, currently set at 10 percent for most items, excluding food.