Japan may finally end US$10,000 cap on women's incentive to work

Tokyo's first woman governor Yuriko Koike smiles at her office as she poses for the media at Tokyo Metropolitan Government Building in Tokyo on August 2. PHOTO: REUTERS

TOKYO (Bloomberg) - Japan may axe a longstanding spousal tax deduction that encourages many married women to limit paid work as pressure grows for Shinzo Abe's government to head off a labour shortage and make good on its womenomics goals.

The government is examining how to eliminate a tax advantage that goes to couples when one of them earns less than 1.03 million yen a year (about S$13,407), regardless of how much money the other makes, according to people with knowledge of the matter. The current measure may be replaced by one that considers the combined income of the wife and husband, they said, noting that the discussions are still private.

The deduction, established in 1961 and claimed by 15 million taxpayers last fiscal year, is likely to come up before a government tax panel next month; a change is expected to be opposed by some businesses and many couples who benefit from it. Yet this tax policy is also seen as a force at odds with Abe's goal of encouraging companies to hire and promote more women, and ending it would be seen as removing another barrier.

It works like this: If a taxpayer's spouse earns less than 1.03 million yen, their annual taxable income is reduced by 380,000 yen. So that the household can claim the valuable deduction, many spouses - typically wives - hold down part- time jobs with limited hours to ensure their income doesn't rise above the threshold, creating what's known as the "1.03 million yen wall."

"I think there is a decent percentage of married women for whom a neutralised tax and social security system would incentivise them to work more, including full-time roles as opposed to just part time," said Kathy Matsui, chief Japan strategist at Goldman Sachs.

"This would ultimately lead to higher incomes and greater benefits for their whole families," said Matsui, who is credited with coining the term womenomics.

There is evidence that the tax benefit has discouraged women from advancing their careers. A 2011 survey by the labour ministry found that more than a third of married women who worked part time and deliberately curtailed their hours did so to keep the tax deduction.

THORNY ISSUE

The spousal tax deduction has been a subject of debate since Abe raised the issue in March 2014. A poll by the Nikkei Asian Review in July 2014 found that 80 per cent of women supported revising the tax benefit, while 56 per cent of men opposed such a move.

Yet taxes are only one factor in deciding how much women will work. For some, child care - long a thorny topic in Japan - is the most important concern.

"My daughter is still young, so one of us should be at home to take care of her," said Yu Hara, a 40-year-old information technology worker. "My wife is working as a housewife now."

In Japan, opinions about women working after marriage have shifted over time. A Cabinet Office poll in 1992 found 34 per cent of respondents disagreed with the thinking that husbands should work and women should stay at home. In 2014, that number was up to 49 per cent.

If more women transition from part-time to full-time work, companies would have higher costs for social insurance and pension contributions. Yet a tightening labour market may begin to chip away at corporate opposition to a change in tax policy.

Almost 40 per cent of companies responding to a survey by market research firm Teikoku Databank said they didn't have enough regular employees. About 26 per cent said they didn't have enough non-regular employees, according to the poll from earlier this year.

Revising the tax deduction is also important because it has acted liked a benchmark for pay bumps and benefits that some companies offer to full-time employees, typically men, when they marry. In some cases these corporate support measures disappear if a spouse's income goes above 1.03 million yen, the amount of the tax deduction.

The tax rule also has symbolic significance, said Shungo Koreeda, a researcher at Daiwa Institute of Research. "If you get rid of the spouse deduction, companies will lose that standard for spouse benefits and they'll be easy to change," he said.

For many women, however, the issue is not one of policy abstractions or statistics.

"I tried life as a housewife for about half a year after I got married, but people kept asking me if I'd go back, so I started working again," said Mayumi Shinohara, 50, who works in human resources. "I feel freer with my own source of income, and when I wasn't working I'd sometimes go a full day without talking to anyone. I'm completely satisfied with it."

Join ST's Telegram channel and get the latest breaking news delivered to you.