Refundable Tax Credits: Supporting Low-, Middle-Income Households Is Meaningful

Editorial

17:07 JST, April 10, 2026

Prolonged rising prices are putting a strain on household budgets. Under the current social security system, the burden is particularly heavy for low- and middle-income earners, especially households raising children.

These people’s ability to live with peace of mind should be protected through permanent institutional reforms.

The National Council on Social Security, a government panel, has begun full-scale discussions on concrete strategies for implementing refundable tax credits. The government aims to compile interim plans before summer.

The refundable tax credit system is envisaged to combine cash benefits with a tax cut in the form of an income tax deduction. Under the system, high-income earners would receive a tax reduction, while cash benefits would be provided to low-income individuals and households with no taxable income.

Raising the consumption tax is a reasonable way to fund pensions, healthcare and other social security programs, but tax increases are likely to meet with strong public opposition. In light of this, funding for these programs has been secured so far primarily by raising social insurance premiums, which are deducted directly from salaries, instead of through taxes.

Considering these circumstances, some people argue that, in comparison with other developed nations, Japan has a social security system unfriendly to the working-age population and low- to middle-income families raising children. Also, public frustration has been growing with persistently rising prices, especially recently.

Temporary cash handouts, which have been repeatedly offered since the COVID-19 pandemic, have failed to dispel a sense of concern among the people. For that reason, it is believed that refundable tax credits will provide more substantial support for low- and middle-income earners.

At the national council, the focus will be on determining the income threshold for eligibility and the scale of support. Considering the worsening issues of a low birthrate and an aging population, providing generous support for households raising children is only natural. How to secure a stable source of funding is also likely to be an important question.

Refundable tax credits have been widely implemented overseas, such as in the United States and European countries. Discussions have not progressed in Japan because it is difficult to accurately assess individual incomes.

There are people with low incomes but substantial assets, while other people have substantial income from financial investments or real estate in addition to their salaries. If cash benefits are provided to such individuals, the system’s fairness will be undermined.

Although the My Number identification system has taken hold, there is a view that it will take time to create a scheme to fully track individual income and assets. The government also should consider starting with what is feasible when introducing this new system.

Calling the new system the core of reform, Prime Minister Sanae Takaichi is considering reducing the consumption tax on food items for a limited period of two years as a stopgap measure until the system is fully launched.

However, some estimate that it will take a year to upgrade cash register systems, and there is a risk of chaos being caused by people holding back on purchases or stockpiling goods before and after the tax reduction is implemented. There is also strong speculation that the tax reduction will not fully translate into lower prices. With such adverse effects anticipated, the government should not be fixated on cutting the consumption tax.

 (From The Yomiuri Shimbun, April 10, 2026)