Japan plans tax break to encourage spouses to work more hours

Japan says its economy grew at a slower pace than earlier estimated in July to September, expanding at an annual pace of 1.3 percent. (AP)

TOKYO: Japan’s ruling coalition has approved a plan to increase a tax credit for married couples to encourage spouses who work part-time to increase their hours, hoping to relieve chronic labor shortages in some sectors.
The plan, part of Prime Minister Shinzo Abe’s labor reform drive, lets primary earners claim a tax deduction of 380,000 yen ($3,352) if their spouses earn up to 1.5 million yen a year, versus the current 1.03 million yen ceiling.
Abe hopes that a higher ceiling will encourage lower-earning spouses — many of whom housewives who keep working hours below the 1.03 million yen cap — to work more as labor shortages in Japan’s fast-aging society threaten to stifle economic growth.
The annual tax code revision is expected to be endorsed by the cabinet this month and submitted to parliament early next year.
Junko Sakuyama, an economist at Dai-ichi Life Research Institute, wrote in a report, “I doubt if this revision alone will expand employment of medium- to low-income part-timers.”
The ruling coalition initially sought to abolish the spousal tax deduction and switch to a standard tax break for married couples regardless of their income.
But they dropped this idea out of concern it would upset households with a high income-earner and a homemaker.
The planned revision will not affect households with couples who both work full-time, but it basically benefits ones comprising a full-time employee and a part-time worker.
The Cabinet Office said that Japan’s economy grew much slower than initially estimated in the third quarter, revised data showed, as capital expenditure dried up and companies ran down inventories.
It said that the economy grew at a 1.3 percent annualized rate in July-September, a severe revision from the 2.2 percent annualized growth first estimated and barely over half the median estimate for a 2.4 percent annualized expansion.
Capital expenditure fell 0.4 percent in the quarter, versus the preliminary estimate of 0.0 percent, as steel and real estate companies reduced investment.
On the positive side, consumer spending was revised up and separate data showed services sector sentiment improved. However, weak capital expenditure may temper optimism that the economy could accelerate heading into next year.
“Capex and consumer spending are the twin engines of domestic demand, and I’m not convinced that both will recover strongly,” said Norio Miyagawa, senior economist at Mizuho Securities.
“We have government stimulus and a weak yen, so the economy will continue to grow, but growth will be modest.”
Inventories subtracted 0.3 percentage point from growth, more than a preliminary reading of a 0.1 percentage point contraction, which showed that a recent buildup in inventories was slowing, and a positive sign that companies were able to sell excess goods, Miyagawa said.
Net exports added 0.3 percentage point to growth in July-September, less than a 0.5 percentage point contribution in the previous quarter.
However, economists were optimistic that exports would pick up in the future as the yen had fallen to an eight-month low after Donald Trump was elected US president.
Japan’s government has also approved a stimulus package with 7.5 trillion yen of spending on public works, which should marginally support growth next year, economists say.
Private consumption, which accounts for roughly 60 percent of the economy, rose 0.3 percent, versus the preliminary estimate of 0.1 percent growth, as households spent more on food and beverages, TV sets and domestic travel.
The government adopted a new base year for calculating gross domestic product, which lifted nominal GDP closer to the Prime Minister Shinzo Abe’s target level.
The new calculation method, which will include research and development as capital expenditure for the first time to conform with international standards, has been applied to GDP data going back to 1994.
Because of this change, business investment was 17 percent higher last quarter than previous data had suggested, according to Marcel Thieliant, senior Japan economist at Capital Economics in Singapore.
Cabinet Office data showed the new calculation method added 19.2 trillion yen to capital expenditure in fiscal 2015, versus an 18.5 trillion yen contribution in the previous fiscal year.
“The changes have made the capital expenditure data more accurate,” said Hiroshi Miyazaki, senior economist at Mitsubishi UFJ Morgan Stanley Securities.
“This won’t change the overall pace of growth. I expect capital expenditure to bottom out in the current quarter.”
An index of sentiment among so-called “economy-watcher” service-sector workers, such as taxi drivers and restaurant staff, rose to 53.5 in November, the highest since March 2014, as a stock market rally and a falling yen made employees more optimistic.