Debate over income tax threshold reform hits roadblock with new LDP proposal

Here we go again.

After a two-month deadlock, the ruling coalition and the opposition Democratic Party for the People entered a new phase in negotiations over a revision of the ¥1.03 million income tax threshold this week only for the Liberal Democratic Party's junior partner, Komeito, to put up resistance.

The three parties aimed to reach a final agreement Tuesday and secure budget approval in the Lower House by the end of the month. It was the first time they had discussed the issue since agreeing to raise the threshold to ¥1.78 million in December last year.

The LDP on Tuesday proposed raising the income tax threshold to ¥1.6 million for households with an annual income of ¥2 million or less. The aim is to provide additional support to lower-income households.

“Our proposal reflects the trends in the cost of living and current welfare plans implemented by the government,” LDP tax policy czar Yoichi Miyazawa said, adding that negotiations over the gasoline tax will continue over the next few weeks.

The proposal also creates temporary measures for a two fiscal-year period to boost the income of households earning between ¥2 million and ¥5 million.

But junior coalition partner Komeito is strongly pushing to make larger concessions and expand fiscal benefits to those earning more than ¥2 million. Komeito's opposition adds to the LDP's woes, forcing the LDP to maintain a delicate balance between pressing requests and fiscal responsibility.

The finance ministry estimates that raising the threshold to ¥1.78 million as proposed by the DPP would cost approximately ¥7 trillion — a sum equivalent to roughly 6% of the government’s budget proposal for fiscal 2025.

”Abolishing all thresholds would end up representing a considerable burden on the taxpayers,” Miyazawa told reporters Tuesday, referring to the loss for the state’s financial coffers. “What we have right now in our proposal is the kind of level difference you don’t really mind when you walk in your house."

DPP executives raise their fists at the party's convention in Tokyo on Feb. 11. | JIJI

However, the DPP has expressed reservations about the ¥1.6 million figure.

“When I heard the proposal, I felt frustrated. I thought: 'What have you been doing for the past two months?'” DPP acting leader Motohisa Furukawa, who also serves as the party’s tax committee chairman, said Wednesday. “We must respond to this properly.”

Strong rhetoric from the DPP is nothing new.

Since the last Lower House elections, raising the ¥1.03 million income tax threshold has become one of the DPP’s key priorities. The party has long argued that the current threshold deters certain workers — especially university students and women — from working longer hours, representing a huge loss for the individuals themselves and society at large.

In a second meeting on Wednesday, the DPP requested scrapping income thresholds and the current temporary tax rate on gasoline. Miyazawa said the party will consider the DPP's requests.

Discussions are expected to continue over the next few days, with the next scheduled for Thursday. Whether, ahead of a series of key elections in the summer, the LDP and Komeito will be able to overcome internal differences and compromise on fiscal responsibility in the name of achieving a consensus on the budget remains to be seen.

Meanwhile, Nippon Ishin no Kai is getting closer to seeing its requests reflected in the budget.

The three parties’ policy chiefs met twice on Wednesday to scrutinize the wording of a potential three-way agreement on education policy and revision of the social insurance system, set to be signed on Friday at the earliest.

Nippon Ishin’s backing of the government’s budget proposal would suffice for approval in the Lower House, but the coalition appears to be insisting on securing consensus across the aisle.

Nippon Ishin co-leader Seiji Mehara expressed caution as he addressed the party’s executives on Wednesday.

“If we cannot find an agreement on the final document itself, we can also ultimately choose to oppose it,” he said.

After meeting with his LDP and Komeito counterparts Wednesday evening, the party’s policy chief, Hitoshi Aoyagi, confirmed the parties have yet to bridge the remaining gaps.

“People have various opinions in the party. We want to see the critical issues in the agreement, especially in relation to a reform of social security,” Aoyagi told reporters.

The parties will meet again Thursday.