Japan Tax Plan: Updated Dec. 29, 2023

 

Japan gov't floats 40,000 yen income tax cut a year to ease inflation pain

Article Source: https://mainichi.jp/english/articles/20231024/p2g/00m/0na/043000c

Article:

TOKYO (Kyodo) -- The Japanese government is considering an income tax cut of 40,000 yen ($268) per person and cash handouts of 70,000 yen to low-income households as part of temporary inflation-relief measures, sources familiar with the plan said Tuesday.

Prime Minister Fumio Kishida, who places priority on wealth redistribution, has instructed ruling coalition executives to work out details of the economic package that he hopes to formalize on Nov. 2, including how to realize the income tax cut.

Legislation will be required to change the current tax system, making it likely that Japanese households, already reeling from the rising costs of living, will start feeling the benefits around next summer at the earliest.

Ideas:

A tax cut of 40,000 yen and a cash handout of 70,000 sounds very good, but is there is always the idea of how the Japanese government is going to pay for the extra funding, as the Japanese government already has one of the largest, if not the largest debt to GDP ratio among advanced economies.

Just what is wealth redistribution? Does it mean getting more extra income for workers, is it reducing income inequality in the Japanese economy, does it mean giving incentives to companies who might be sitting on a lot of extra cash, to use it for their workers.

Both the tax cut and cash handout sound good, but it is going to be a onetime situation or is it going to be yearly. And then are there going to be limitations, regarding who will get it and who will not get it depending on income levels.

And then there is the idea of how will it get into the hands of those who need it. For example, will families be able to apply quickly and easily without a lot of government red tape, or a lot of documents, for example that need to be completed before families can get the handouts or tax breaks.

Article:

The cash payouts could begin by the end of the current fiscal year ending March, the sources said.

Higher fuel and raw material import costs have driven resource-scarce Japan's inflation rate higher, with its impact exacerbated by a weaker yen.

Kishida has vowed to put the economy before anything else in his policy speech as an extraordinary Diet session got under way. His increased focus on the economy comes as he is scrambling to stem a downward spiral in public support, partly seen in the mixed results of parliamentary by-elections on Sunday.

Ideas:

Anytime a government says they are going to do something, eventually what is finally decided on is not the same as what they wanted to planned as compromise on certain points could result in something much different.

For example the tax handout of 40,000 could be much less and the 70,000 cash handout could also be much less when all is done and said.

But the Japanese government needs to be very careful, as just using and giving handouts and tax cuts, might sound very good, but there are always going to be, in every society, those who try to take advantage of the system, such as cheating on documents etc. as a way to get more.

Ans then there is the idea of interfering in the normal business and economic activity as what will this do the normal market functions of an economy.

But at the same time, the Northern European countries seems to be doing just fine with a system that takes care of its citizens and the economies are doing just fine.

Article:

To return part of an increase in tax revenue to the Japanese people, 40,000 yen has emerged as an option within the government, according to the sources.

Japan has seen record-high tax revenue for the past three years through fiscal 2022. Of the total, income tax revenue grew by around 3 trillion yen from fiscal 2020.

The ruling coalition of the Liberal Democratic Party and its junior coalition partner, Komeito, are expected to decide how long the tax cut should last. Yoichi Miyazawa, who heads the LDP's tax reform panel, has said one year would be "common sense."

Ideas:

Just how long the tax cut could last, meaning the ruling party will negotiate how much and when families can get the tax cuts, and maybe there might be more than one tax cut in a year or maybe even each year.

One year might seem like "common sense" but maybe the lower income groups need it for more than one year.

And or what about the 70 percent who don't work for large companies and didn't get a pay increase like those in big companies did. Are they maybe going to be eligible for multi year tax cuts.

Again, just how did the Japanese government come up with a tax cut of 40,000? Why not 50,000 or even 30,000.What was the basis for the 40,000 yen figure?

Article:

Komeito chief Natsuo Yamaguchi has said over 20,000 yen could be one target if the government decides to deduct a fixed amount from tax payments.

Another option to reduce income tax is to set a specific deduction rate, though it would benefit high-income earners more because tax burdens increase according to income levels.

Ideas:

And here we go, already in the article the 40,000 might be reduced to 20,000, through some other means such as deductions  fixed amounts.

If word got out, like in other countries, that higher income groups might benefit more than lower income groups that might not sit well with voters in coming elections.

Some might say, the higher income groups already are advantaged with higher incomes, and the amount of tax they pay more than makes up for the income they get.

Article:

The envisaged package would cushion the negative impact of rising prices on households and put the economy on a longer-term growth path.

The government is considering extending existing subsidies to lower gasoline prices and reduce household utility bills from the end of the year to next April.

Ideas:

At the same time, for the most part, the higher income groups might not even feel or notice the continued inflation in the Japanese economy, as maybe the lower income, feel the continued inflation and need the cash handout and the tax cut more than the higher income groups.

But will the cash handout and tax cuts really "put the economy on a longer term growth path'?

The answer is very complicated and maybe a one time cash handout and or tax cut is not going to be enough, as maybe the cash handout only lasts at the most one month and the tax cut too is too much or too short to have any real significant effects on economic growth.

Japan, for the most part, needs more innovation and improved overall per capita productivity for any real economic growth to occur.

Have a nice day and be safe!