Various Walls of Annual Income Appear

As policy talk between Shigeru Ishiba administration and the opposition party goes on, there appeared various “walls” in the people’s life are appearing. While the Democratic Party for the People (DPP) insists on raising threshold of 1.03 million yen of annual income for payment of income tax, the government considers removing another threshold of 1.3 million yen for social insurance. The discussion may escalate to a fundamental reform of tax system for individuals. 

The threshold is called “wall”. Here’s why. In the case of part-time job of a college student who are financially protected by parents, the parent can receive 630 thousand yen of tax credit annually, as long as the college student’s income is less than 1.03 million. He/she has to stop working not his/her annual income to exceed 1.03 million yen, to let the parent keeps on receiving the tax credit.

 

There are many cases that students stop working in November or December, as each of their annual income reaches 1.03 million yen, even how they want to work more. That is why it is called “wall” which demotivates the workers. It even causes shortage of labor force in Japan. The leader of DPP, Yuichiro Tamaki, argue that the wall should be set at 1.78 million yen, based on increase of minimum wage for decades.

 

There are other walls of 1.06 million yen and 1.3 million yen. In an office with more than 50 workers, a worker with annual income of 1.06 million yen or more needs to pay cost for health insurance and employee’s pension. Regardless the size of business, everyone who has 1.3 million or more needs to pay for the basic pension. Those thresholds also cause for workers to stop working before income goes beyond the line.

 

The government has been considering removing walls of 1.06 million yen and 1.3 million yen. If they are removed, the take-home pay will be reduced, balancing possible increase by raising the wall of 1.03 million yen.

 

The wall of 1.5 million yen is a threshold for tax credit for spouse. People whose spouse annually earns less than 1.5 million yen can receive 380 thousand yen of tax credit. So the spouse likes to have part-time job within 1.5 million yen of annual income. The wall of residential tax is set at 1 million yen.

 

Accepting request from the DPP, the Liberal Democratic Party and Komeito consider removing some of those “walls”. However, the government led by Prime Minister Ishiba, has not discovered alternative fiscal resource to compensate the lack of revenue produced by those removal of walls. It is estimated that if the wall of 1.03 million yen is raised to 1.78 million yen, the government needs to find 7 to 8 trillion yen to cover it.

 

Although the LDP requested the DPP to talk about the fiscal resource, the DPP refused to be involved in the responsibility on fiscal balance. The Constitutional Democratic Party of Japan submitted a bill to the Diet, which proposed allowance for the family losing some take-home pay by removal of the wall of 1.3 million yen. The discussion is far from a convergence.

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