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.¡±