After 55 years, Japan is finally thinking of dropping its tax breaks for men with wives to encourage women into work

Photo: Sion Touhig.

Japanese unemployment fell to 3% in July, a 21-year low, while the nation’s job to applicants ratio — a figure derived by dividing the number of monthly job openings by the number of job applicants — held steady at a 1.37, a 25-year high.

Though not enough to spur on any meaningful wage inflation as yet, it’s clear that labour market conditions are tightening, thanks largely to the nation’s aging demographics.

In an attempt to bolster workplace participation among Japanese women, the government is planning an unusual step – at least unusual in Japan – to help bolster worker numbers: abolish decades-old spousal tax breaks.

That’s right.

In order to help boost the full time workforce, the government is considering abolishing tax breaks for having a spouse who is not working, or who is not working full time, which in the majority of cases is a wife.

And you thought allowing tax deductions on personal income for a negatively geared investment property was wild.

Here’s a snippet from a story that ran in the Japan Times earlier this week:

With more households now gravitating toward a dual-income life after decades of economic stagnation, “it is necessary to adjust our tax system in accordance with changing societal landscapes,” LDP [Liberal Democratic Party] Secretary-General Toshihiro Nikai told reporters Tuesday.

Nikai said the LDP wants to support what he called the “groundbreaking” idea of rethinking the spousal tax deduction system.

The tax break, introduced in 1961, cuts the annual taxable income of a household’s main earner — usually a husband — by 380,000 yen ($US3,700) if the dependent spouse — often a wife — earns less than 1.03 million yen ($US10,000) per year.

The tax deduction, particularly in the year 2016, has it’s critics who believe that it has hindered workplace participation among women.

In a survey of part-time workers conducted by the government’s labor ministry in 2011 found that 63% of married women admitted to limiting their working hours in order to keep their annual income under the 1.03 million yen threshold.

According to the Japan Times, “the plan dovetails with Prime Minister Shinzo Abe’s “womenomics” policy drive as the population ages and the nation scrambles to draw more women into the workforce”.

The government is said to be considering replacing the current system with an apparent “marital tax break” in which households would qualify for a tax deduction based on a combined income level.

Japan’s government debt-to-GDP ratio currently stands at around 250%, and is the highest among developed nations.

You can read more on this fascinating story at the Japan Times.

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