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Tokyo eyes ‘womenomics’ gains from tax move

  • November 24, 2016
  • , Nikkei Asian Review , 2:30 a.m.
  • English Press

TOKYO — Japanese policymakers are nearing a deal on raising the income cap on an income tax deduction for spouses, a move that Prime Minister Shinzo Abe’s government hopes will encourage women to work more outside the home.


A proposal in late-stage discussions would lift the ceiling on the spouse’s annual income to 1.5 million yen ($13,300) from 1.03 million yen.


Above 1.5 million yen, the deduction would taper off to avoid creating a “cliff edge” that precipitates a drop in households’ after-tax income.


The lower-earning spouse is typically a housewife working a part-time job. Under the current rules, as long as the wife earns no more than 1.03 million yen, her jointly filing husband can deduct 380,000 yen from his income.


Tax policymakers in the ruling Liberal Democratic Party and Komeito discussed changes to the spousal deduction on Wednesday. The higher cap may take effect as early as 2018.


Raising the income ceiling has been a recurring theme in Japanese tax policy. The Ministry of Finance has proposed going to 1.3 million yen or 1.5 million yen. The LDP’s tax policymakers overwhelmingly favor the higher figure as a more potent inducement to work.


A 1.3 million yen cap would coincide with another threshold. Earning income higher than that requires the spouse to contribute to national pension and health care programs — a burden that can make low-paying part-time work less worthwhile. Women faced with this “wall” tend to work shorter hours to avoid triggering the contributions.


“It’s better to raise [the cap] to 1.5 million yen,” Takeshi Noda, chairman of the LDP’s tax research commission, told a television program Wednesday. Ruling coalition partner Komeito also favors the higher of the two proposals because “more households would see their taxes go down,” a senior party member said.


The Ministry of Finance estimates that lifting the cap to 1.5 million yen would result in a tax cut for 3.6 million households, compared with 2.6 million for the lower proposal.


The government and ruling coalition seek to offset the fiscal impact of the higher deduction by placing a ceiling on the higher-earning spouse’s income, above which the deduction would be tapered or cut off.


Many big companies pay their workers spousal allowances, many of which are cut off when the spouse earns more than 1.03 million yen. This creates another “wall” said to deter women from working more.


Some in the government and ruling coalition had favored ending the spousal deduction altogether and replacing it with one designed for two-earner families. But this idea was dropped after Komeito turned skittish, fearing a backlash from housewives.

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