LDP to scrap spousal tax break in bid to get more women into full-time work

by Tomohiro Osaki

Staff Writer

In what would signify a major policy shift, the ruling Liberal Democratic Party plans to abolish the decades-old spousal tax break that critics say has long dissuaded wives from seeking full-time work.

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.

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 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.

His comments came after Yoichi Miyazawa, chairman of the party’s tax system commission, told several local media outlets that the LDP was considering scrapping the spousal tax break. Miyazawa had said the plan would be to replace it with a new system that better caters to double-income households in a bid to foster the career development of women.

The spousal tax break was introduced in 1961, at a time when women were still largely expected to be stay-at-home housewives after marriage, relying on husbands as the breadwinners.

The current system cuts the taxable annual income of a household’s main earner by ¥380,000, but the household forfeits the benefit if the dependent spouse — often a wife — earns more than ¥1.03 million a year.

Under this system, many wives feel compelled to limit their working hours to avoid letting their income exceed the ¥1.03 million threshold.

Observers say this system is unfit for an age when more women are working and fewer households rely on just one breadwinner.

In a 2011 labor ministry survey of part-time workers, 63 percent of married women admitted to reining in their working hours lest they earn more than ¥1.03 million annually.

However, Nikai cautioned that abolishing the spousal tax deduction system altogether would also place a burden on single-income families.

In an apparent bid to forestall a backlash, Miyazawa told the Nikkei financial daily that the party is considering replacing the current system with what could be translated as a “marital tax break,” in which households can qualify for a certain level of deduction regardless of whether they have a double income.

The new system will scrap the ¥1.03 million threshold imposed on dependent spouses but set an upper limit on the amount of combined annual income the couple can earn, Miyazawa told the Nikkei.

While reforming the spousal tax system will be a major step for the conservative LDP, Nikai nonetheless insisted that the planned reforms must not “destroy our traditional family model.”

If realized, the removal of the spousal tax deduction would go a long way toward spurring more women into joining the workforce and assuaging the nation’s labor shortage, according to Shungo Koreeda, a researcher at Daiwa Institute of Research.

But the effect, he said, will be “limited,” given there is another hurdle Japan needs to overcome in order to make full use of female employees in the workplace — the so-called wall of ¥1.3 million.

Currently, dependent spouses don’t need to pay their own health insurance fees and pension premiums unless their annual income tops the ¥1.3 million mark. Earning more than that would force them to join social security plans at their own expense, serving as yet another disincentive for career development.

“So it’s within the space of ¥1.03 million to ¥1.3 million that women are likely to be able to work more,” Koreeda said.