The hometown donation system introduced in fiscal 2008 provide tax deductions to people who donate money to a local government of their choice. While the program, known in Japanese as furusato nozei, was originally intended to let people support their native place in rural areas — supposedly in dire financial condition due to depopulation and other woes — municipalities across the country are now busy competing with each other in offering attractive gifts in order to get more donations. Donors meanwhile have come to view the scheme as a cheap way of receiving alluring prizes. There is also criticism that the program is being abused by the wealthy as a tax dodge, since the higher the donor's income, the bigger the tax break. In reviewing its various problems, the government should consider abolishing the program if the problems can't be fixed.
Under the system, people making a donation to a prefectural or municipal government of their choice get a deduction in the residence tax they pay to the municipality in which they currently live and the income tax they pay to the national government. If the donation minus ¥2,000 falls within a certain ceiling — which rises as the donor's income increases — the tax payment is reduced by that sum.
After hovering around ¥10 billion in the initial few years, the total amount of such contributions grew to ¥14.5 billion in fiscal 2013 and ¥38.8 billion in fiscal 2014. It then surged to ¥165.3 billion in fiscal 2015, while the number of donations jumped 3.8 times that year to 7.26 million. That spike was mainly attributed to a move by the Abe administration to nearly double the ceiling at or below which the donation minus ¥2,000 will be deducted.