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Abe may reduce tax benefits for women

by Chikako Mogi and Kyoko Shimodoi

Bloomberg

Prime Minister Shinzo Abe’s reflation campaign last year helped draw the most women to work since 1991. He now plans to add a stick to that carrot, scaling back tax benefits for spouses with limited earnings.

The administration is reviewing rules that let about 14 million married workers earn as much as ¥1.03 million a year tax-free. Removing the measures, which cost an estimated annual ¥600 billion in fiscal revenue, could spur some women to work longer hours, and help bolster Japan’s shrinking job market.

“The traditional family structure where husbands go out to work and wives look after the home is crumbling,” said Akiyoshi Takumori, chief economist at Sumitomo Mitsui Asset Management Co. in Tokyo. “The labor force is shrinking and there is a growing need for immigrants or women to work.”

Without greater access to child-care facilities, the move risks adding a burden to households hit by the end of a 15-year slide in the cost of living and the first consumption tax increase since 1997. The dilemma showcases the challenge for Abe in attempting to stoke growth and inject dynamism in the workforce while reining in the world’s largest public debt burden.

The number of women employed grew by 470,000 last year to 27 million — the biggest increase since 1991, according to the internal affairs ministry.

Japan’s female labor participation rate is 73 percent, according to a report last year by Kathy Matsui, Goldman Sachs Group Inc.’s chief Japan strategist and the author of reports on “Womenomics” that have been cited by Abe. That compares with a high of 96 percent in Finland, and 85 percent in the United States, according to Matsui.

The strategist sees long-term gains from a tax change. “The benefit that is ‘lost’ for certain households where the wife opts to stay at home should be more than compensated by the income earned by women working outside the home,” Matsui wrote in an email message.

As Abe tries to maintain investors’ faith in the so-called third arrow of Abenomics — structural reforms to improve the efficiency of the economy — he told a meeting of advisory panels on March 19 to consider revising the spousal taxes.

Private-sector members of the groups said the rules deter female participation in the labor force, noting a high number of housewives earning about ¥1 million is not something that would occur without the ceiling.

The current system also gives married workers earning under the threshold extra welfare benefits because they can be placed under their partners’ health insurance and pension plans for free.

Sumitomo Mitsui’s Takumori said that getting more women into the workplace also requires discussions of child care, nursing and social welfare.

But only about 30 percent of housewives holding part-time jobs want to work full-time, said Takami Furuhashi, a researcher at Aidem Inc., a Tokyo-based employment agency. “Many housewives use the tax break so they can work flexible hours that allow them to bring up children and do housework,” she said.

Kaori Hori, a mother of two teenagers from Chiba Prefecture, is one of the women who keep their income below the ceiling.

“I’d like to work a bit more but I haven’t yet taken that step yet as I’ve heard I may incur losses if I work beyond the benefit limits,” said the 47-year-old, who works about 25 hours a week. “I’m worried that reducing the allowance will make things harder for me.”

Any extra blow to household incomes would come just as purchasing power is falling. Price increases are outstripping wage gains as Abe and the central bank chase a goal of 2 percent inflation and an end to Japan’s 15-year deflationary malaise.

A 3-point increase in the nation’s consumption tax this week is projected by economists to trigger a one-quarter economic contraction. Consumer confidence fell in February to its lowest since September 2011.

Still, Miki Ohata, an economist at Mitsubishi UFJ Research and Consulting Co. in Tokyo, sees scrapping the tax break as likely aiding Abe’s efforts to achieve sustained growth in the long term.

“When wives work, consumption rises accordingly — spending rises for household services, eating out, women’s clothing and social expenses,” Ohata said. “It will lead to the positive cycle that Abenomics is aiming for.”

  • Earl Kinmonth

    I don’t know where Kathy Matsui is getting her numbers. As reported in the article, she claims 85% for the US. The World Bank says 57%. The Women’s Bureau of the US Department of Labor Statistics says 48%. OECD data shows Japan at about 60% and the US at about 65%. Different numbers come from different definitions, but I’ve not been able to find any reputable source such as the World Bank or the OECD that gives the numbers she does or which has such a large spread between Japan and the US.