University kids and karaoke may be key to Japan’s Ishiba staying on as PM

TOKYO – A shortage of students willing to work at bars, restaurants or karaoke joints in the busy year-end season – even as pay rises – is a conundrum Japanese Prime Minister Shigeru Ishiba must address to shore up his leadership.

While Mr Ishiba managed to stay on as premier in a parliamentary vote on Nov 11, the chances he will remain at the helm of his minority government in the longer term will depend partly on his ability to deliver policies including an economic package. His Liberal Democratic Party-led coalition will need the backing of at least one opposition party.

In exchange, his most likely opposition ally is pushing to raise a 1.03 million yen ($8,890) threshold for paying income tax. The ceiling discourages part-timers, including students, from working towards the year-end, making it a hot-button issue among younger voters who turned their backs on Mr Ishiba’s LDP in the general election.

“Even if minimum pay rates are raised, it’s meaningless if the ceiling isn’t changed,” said Mr Shoei Soga, a college senior living in Tokyo, who works part-time at a clinic in the capital. 

His monthly pay sometimes reaches 170,000 yen, putting him on course to hit the tax threshold. Exceeding that limit means parents of students lose entitlement to a 650,000 yen tax break. Mr Soga says he has been told by his parents to stay under the tax ceiling. 

The tax deduction for dependents between 19 and 22 years of age is a strong incentive for students to limit their earnings, according to Professor Ayako Kondo from the Institute of Social Science in the University of Tokyo. 

Many businesses struggle with staff shortages – in December, there were 3.19 jobs available to every job seeker in customer-facing roles, with data from the Labour Ministry showing the market tightening towards year-end.

For students, staying below the ceiling means a maximum monthly income of around 80,000 yen. That covers less of their outlays as inflation pushes up living costs, especially for students who are not living at home.

The 1.03 million yen level is one of many ceilings that kick in as income rises. Health insurance and some public pension contributions kick in from 1.06 million yen, while wider social security payments start at the 1.3 million yen mark.

Mr Ishiba touched on the need to look at these ceilings in a briefing on Nov 11. A draft of his economic package, seen on Nov 12 by Bloomberg, shows that the government intends to take some action to relieve the problem, while a poll published by the Yomiuri newspaper on Nov 12 found 78 per cent of respondents were in favour of the move. 

Mr Yuichiro Tamaki’s Democratic Party for the People (DPP) has demanded the change in return for support for some of Mr Ishiba’s policies. While the DPP has only 28 seats out of 465 in Japan’s lower house, its presence quadrupled in October’s election as younger voters propelled the party from the fringes to make it the key swing vote in Parliament.

Mr Tamaki argues that the tax threshold should be raised to 1.78 million yen to align it with the increase in the minimum wage since the last revision in 1995. He has said this would help relieve a chronic labour shortage that is exacerbated at the year-end while stimulating the economy through extra business, economic growth and by extension more tax receipts.

The Finance Ministry says the move would initially chop 8 trillion yen off the nation’s annual tax receipts. That is equivalent to more than 10 per cent of total tax revenue for a deeply indebted government that is still looking for ways to pay for extra defence and child support spending. Mr Ishiba will need to strike a deal that maintains DPP support, without creating a gaping hole in the country’s finances.

In the meantime, students and their families will be watching closely to see if they can consider working through the year-end in future.

“Karaoke venues are closing their doors when they could be making money at the end of the year because they can’t hire people,” the DPP’s Mr Tamaki said last week in an interview with Bloomberg. “I think that’s a wasted opportunity.” Bloomberg