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Editorial: Socioeconomic vision lacking in fiscal 2022 tax reform plan

  • December 11, 2021
  • , The Asahi Shimbun , 2:40 p.m.
  • English Press

As the tax system underpins socioeconomics, it inevitably must be viewed as an indispensable policy tool for the “new form of capitalism” envisioned by Prime Minister Fumio Kishida.

 

But in fiscal 2022 tax reform proposals finalized Dec. 10 by the ruling Liberal Democratic Party and its junior coalition partner Komeito, almost all key issues designated as “top priority” by Kishida himself–such as correcting income disparities and curbing global warming–were put on the back burner.

 

On the other hand, the government will extend the current mortgage tax credit system which will expire at the end of this year and review the rate. It was also decided that fixed property tax breaks to cover losses due to the novel coronavirus pandemic will be reduced. Tax cuts for operators of the 5th-generation (5G) mobile communication system will be extended.

 

However, the proposals did not even indicate a timetable for finalizing decisions concerning a carbon tax, nor on the reinforcement of the financial income tax which Kishida referred to at one time as the backbone of his “income redistribution policy.”

 

In short, the public is getting no vision of the kind of society and economy the government is aiming for.

 

The centerpiece of the proposals is a tax system to promote pay raises. As the “carrot,” the maximum tax reduction rate will be hiked from 25 percent to 40 percent for small and medium-sized businesses, and from 20 percent to 30 percent for large companies in return for certain levels of wage hikes. As for the “stick,” stricter rules will be applied to disqualify mega-enterprises from receiving tax cuts on research and development unless they raise their workers’ wages.

 

However, one downside of tax incentives is that they benefit only businesses that are making a profit. As for the “stick,” its effectiveness cannot be judged because companies can easily avoid it if they award regular pay raises.

 

Not to be forgotten is that corporate tax cuts were repeatedly implemented when Shinzo Abe was prime minister, but the benefits failed to trickle down to workers as expected, and only resulted in increased internal reserves for companies and higher dividends.

 

If this pattern is to continue, the “stick” will have to be fundamentally reinforced, and a corporate tax hike may be a viable option.

 

Reforming excessively profit-oriented corporate management practices ought to be a major undertaking in the pursuit of Kishida’s “new form of capitalism.” Pay raises can be considered a part of the corporate cycle of giving a portion of a company’s profits to society, and investors and consumers need to keep a close eye on such developments. But for that to happen, a system needs to be devised that is transparent. This is an urgent task.

 

One matter worth noting is that the proposals call on mega-enterprises, to which the latest tax cuts will be applied for raising wages, to declare their pay raise policies and the considerations they are giving to their business partners.

 

One notable fact in recent years is that Toyota Motor Corp. and other major enterprises have stopped disclosing their base pay hike figures.

 

To ensure such companies really mean and practice what they declare, they must be obliged to disclose absolute figures and other information with regard to pay raises. Efforts are also needed to enable the public to make easy comparisons.

 

There are other challenges to tax system reforms; for example, having an ample budget to improve the working conditions of nursing care and child care workers so they can deal more effectively with the nation’s low birthrate. This is indispensable. But securing financial resources without forcing sacrifices on taxpayers is never easy.

 

And that is precisely why tax system discussions must always be held in an open manner and allow a broad range of experts and interested parties to participate and speak freely.

 

As long as members of the ruling coalition continue to discuss such matters behind closed doors, they will never gain the understanding of the taxpaying public.

 

–The Asahi Shimbun, Dec. 11

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