Archive for the ‘Economy’ Category

Local municipalities vie for your ‘hometown tax’

Monday, August 11th, 2014

Screen shot of web portal site for products being offered as gifts in exchange for "hometown tax" donations

Screen shot of web portal site for products being offered as gifts in exchange for “hometown tax” donations

The ruling Liberal Democratic Party is already thinking about next year’s local government elections and in order to help their candidates is studying a possible increase in the maximum tax deduction afforded to people who contribute “hometown taxes” (furusato nozei), a system that was implemented in 2008 to help regional municipalities struggling with budget shortfalls.

Because an increasing portion of the population is concentrated in large metropolitan areas, local government tax bases are eroding. The hometown tax diverts some of the money people pay to big city governments to these smaller municipalities in the form of donations. In order to make the system attractive to taxpayers, the central government offered deductions not only for national income taxes, but also for local income taxes.

Taxpayers can donate funds to a local government that is different from the one where they live, and despite the name of the system it doesn’t have to be their hometown. It can be any locality. Say you live in Tokyo but you want to help out a town in Fukushima devastated in the disaster of 2011, something that many people have used the furusato nozei to do. If you donate 20,000 to that town in Fukushima through the hometown tax system you can get a deduction off your national tax bill this year, and since local income taxes are based on national income taxes, this deduction, as well as a separate deduction for charitable donations, is reflected in your local tax bill the following year, which will be lower that it would have been otherwise as a result. So for the ¥20,000 donation, the taxpayer ends up with an ¥18,000 tax savings (¥20,000 minus a ¥2,000 handling fee).

Obviously, small local governments like the system very much while larger city or prefectural governments, such as Tokyo’s, don’t, because they lose out on those diverted tax revenues. In 2013, according to the Ministry of Internal Affairs, 22,000 Tokyo taxpayers contributed hometown taxes to other municipalities and it cost the Tokyo Metropolitan Government ¥500 million. By Tokyo’s budget standards that’s a drop in the bucket, but if the LDP raises the maximum amount allowed for the deduction, it could go up significantly, and, it should be noted, almost no one from other municipalities donates money to the Tokyo Metropolitan Government.

But there’s another factor that may drain revenues from big city governments, and that’s competition for furusato nozei contributions. Last month, in line with the aforementioned 2015 local elections, Prime Minister Shinzo Abe visited Tottori Prefecture, which received the highest amount of hometown tax donations in 2013. What makes Tottori, one of the smallest prefectures in the country, so popular? Two answers: beer and crab. In fact, Abe, a teetotaler, made a point of dropping by a local craft brewery because the factory’s product is sent by the prefecture to donors as a thank-you gift. Or, if you donate a certain amount you can receive crab from the prefecture instead.

In this way, donors get multiple effectiveness from their donation: tax cuts (two, in fact) and a free gift that conceivably could be worth more than the donation. Local governments and businesses also receive multiple benefits: they get diverted tax revenues as well as valuable PR for their local products. Now, hundreds of local governments are competing for hometown tax donations with attractive gifts, even if the donations are only a few thousand yen. Consequently, the number of donors and the amounts donated are rising yearly.

According the Ministry of Internal Affairs, in 2009 33,000 people received the hometown tax deduction on their returns, accounting for ¥7.3 billion in donations. Last year the number of deductions was more than 106,000, comprising ¥13 billion in donations.

Tokyo Governor Yoichi Masuzoe has already weighed in on the proposed limit increase, saying that furusato nozei is a “gimmick” for trying to correct an imbalance in local finances but its real result will be to stifle economic progress. The Tokyo tax bureau has complained about the gift system, seemingly because it removes the altruistic component — giving because you care — from the idea of “donations,” and, sensitive to the charge, the Ministry of Internal Affairs has cautioned local governments to be more “responsible” in offering gifts in return for donations. But that may just be lip service. Abe’s support at the local level is supposedly deteriorating, so he needs to do something to bring it back up even a little bit.

What the government doesn’t pay in pensions it will have to make up for with welfare

Monday, July 7th, 2014

One of the biggest fiscal issues — if not the biggest fiscal issue — facing the government is the expected steep increase in the number of seniors who will require welfare benefits after retirement. Everyone assumes that the various national pension systems by themselves are not enough to sustain a minimum standard of living for the people who receive them, and so they will need additional income, either in terms of savings, returns from investments or wages.

Back to work?

Back to work?

In a recent survey conducted by the prime minister’s office and whose target respondents were people between the ages of 35 and 64, nearly 70 percent said that they are not now, nor do they think they will be, financially prepared for retirement. The government, anticipating this reality, several years ago passed a law to ensure that people who wish to work after their designated retirement age will be able to do so, though, as is often the case with socially-minded legislation, there is no compulsion toward employers to make this happen or any penalties if they don’t. It’s up to the employee and the employer working together.

In any case, when asked if they want to work after “retirement,” 31.4 percent of the respondents said they would after the age of 65, and 20.9 percent said they would want to do so after the age of 70. That means more than 52 percent want to work after the age of 60, which is still the standard retirement age at most companies. When asked why they want to work, 77 percent said “to make a living.”

As far as people who are trying to save money for their old age, only 1.6 percent admitted to having “more than enough,” with 21.7 percent saying they have saved or expect to have saved “the minimum necessary.” Of those who answered that they haven’t saved enough, half admit that their savings is “almost nothing,” with 74 percent in the 35-39 age bracket saying their savings is “insufficient,” which probably means nothing so far.

But perception of what they need is also an important consideration. In a survey conducted in June of 2013, the Ministry of Internal Affairs found that the average household whose head is between 60 and 69 spent ¥259,695 a month. This amount dropped to ¥196,500 for households whose head was over 70. According to another survey conducted by the Central Council for Financial Services Information, respondents who are currently working believe, on average, that a retired person needs ¥260,000 a month to live off of.

The government organ, Japan Pension Service, says that the monthly pension income of a retired “model household” is ¥230,000 a month, which comes down to ¥100,000 for a husband who was enrolled in the company sponsored koseinenkin system, ¥65,000 for the same husband’s basic pension (kiso nenkin), and his wife’s own basic pension of ¥65,000. The model assumes that the husband and his employer paid into both pension systems for a full 40 years, and since the dependent wife, as the spouse of a full-time regular employee, is categorized as a “number 3″ national pension subscriber, she is assumed to have paid her fair share, even though, in reality, she paid nothing.

This model household, however, represents a minority. Many other households have heads who are non-regular workers or who were not consistent in terms of payment schedules over the years. And there are other factors that can reduce what a household can expect. The JPS survey found in July 2013 that the average retired household of a former regular employee who paid into the koseinenkin system was ¥215,780. The monthly benefit for people who paid into the basic pension system for a full forty years is now ¥65,541 a month, but the average payout is ¥49,947. Households whose heads are between 60 and 69 said on average that their pension income was 44,000 less than what they needed.

This latter point is important because payments for the basic pension don’t start until age 65 for both spouses, so even for a model household, that means if the breadwinner retires at 60, their pension income is only ¥100,000 for five years. That means they would need another ¥160,000 to reach the level that most people now think you need when you retire. So for those five years, the couple will be short about ¥9 million in total.

In addition, the government is trying to extend the starting age for koseinenkin payments. Right now it starts at 61, but eventually the government wants it to start at 65, or even later, so that limit will rise gradually in the future, further reducing the pension amounts that people receive if they retire at 60. That’s why the government is trying to encourage employers to retain employees even after their mandatory retirement age. According to Asahi Shimbun, employees who are retained after retirement are essentially let go and then rehired at one-fourth to one-third their former salaries. There is nothing in the new law that guarantees a minimum wage for these workers.

And with boomer retirement increasing through to the middle of the next decade, it’s assumed that senior welfare rolls will just keep increasing as well. In 2011, 46.4 percent of the 2 million people on welfare were over 65. The majority of these people are seniors who only receive basic pensions and have no other income or property. The only bright spot is that many boomers already own their homes, so at least they won’t end up on the streets.

Does an increase in summer bonuses mean a healthier economy?

Saturday, June 21st, 2014

It’s that time of year again, the season when employers, both public and private, hand out their summer bonuses. In recent years the recession has kept the amounts down despite the fact that regular employees tend to consider them as an integral part of their annual salaries. In fact, society in general thinks that, as proven by the practice of incorporating bonuses into repayment schedules for home loans. Technically, however, bonuses are literally bonuses: Employers are not obliged to pay them, and actually use them as a kind of safety valve to adjust personnel expenditures twice a year.

Josei Jishin lists 35 of the  top 55 major corporations in terms of size of summer bonus for 35-year-old regular employees

Josei Jishin lists 55 major corporations in terms of size of summer bonus for 35-year-old regular employees

This summer the news sounds good. Bonuses are, on average, higher than they were last year, by about 8.8 percent, according to a survey of 74 companies carried out by Keidanren, Japan’s biggest business lobby. The average bonus for a 35-year-old regular worker will be ¥1.5 million, while that for a manager in his 40s or 50s is above ¥3 million. It’s the highest year-on-year increase on record.

According to Josei Jishin magazine, the biggest bonuses are being given out by trading companies, which makes sense. Trading companies, who do all their business overseas, enjoyed a huge windfall after the government’s monetary easing policy forced down the value of the yen.

Export-oriented manufacturers also did well for the same reason. Toyota’s average summer bonus for a 35-year-old employee is ¥1.23 million, though that sounds sort of stingy considering that the company saw a 73 percent rise in profits. Securities companies, which also benefited from Abenomics, were high on the list (Daiwa Shoken ¥1.35 million), but their employees’ compensations tend to be based more on personal accomplishments rather than corporate achievement, which is the classic definition of a bonus.

In 13th place on the Josei Jishin list is NTT DoCoMo, at ¥935,000, the highest company to record a drop in average bonus pay compared to last year. In fact, only two companies on the list of 55 companies announced a decrease.

What’s notable about the list is that all the companies are big. Smaller firms, it should be noted, aren’t doing as well in the recovery, and while average bonuses have gone up, the actual number of bonuses given out has gone down, from 38.6 million in 2013 to a projected 37.4 million this year.

Economist Hiroko Ogiwara pointed out to the magazine that while automobile makers did really well, their suppliers barely kept up and so didn’t give out much in the way of bonuses. NTT didn’t do as well as last year because it has no export-related business. And domestic companies that rely on imports, like processed food manufacturers, have suffered due to higher costs for ingredients. Moreover, the labor shortage in the retail and service industries pushed up personnel costs. Sukiya, the largest gyudon (beef bowl) chain in Japan, could only afford an average ¥350,000 to its regular employees (meaning not to restaurant staff). Power companies also were cheap with bonuses because of their continuing reliance on imported fuel. Kyushu Power’s average was only ¥300,000.

CONTINUE READING about summer bonuses →

Japanese low-cost carriers hit hard by pilot shortage

Sunday, May 25th, 2014

Onward and upward: Plane taking off from Narita airport

Onward and upward: Plane taking off from Narita International Airport

Low-cost carriers (LCC ) — airlines with cheaper fares than standard carriers — came relatively late to Japan. Peach Aviation was the first in March 2012, followed by Jetstar Japan, an affiliate of Australia’s Qantas Airlines, in July of the same year, and then Air Asia Japan, which has since changed its name to Vanilla Air, for some reason. (Skymark, which also charges less that most airlines, is technically not an LCC.)

As of March, LCCs accounted for 7.5 percent of domestic passengers, which isn’t bad, and growth seemed assured, but suddenly all three bargain airlines have hit a wall. Vanilla recently announced that it will cancel 154 flights, or 20 percent of its schedule, for June, and Peach said it would curtail its own schedule by more than 2,000 flights through October. Jetstar had planned to expand its flight coverage this year but has since postponed those plans.

The reason is a serious shortage of pilots, in particular flight captains. Vanilla says it has had personnel problems recently due to pilots quitting or taking sick leave, but its president, Tomonori Ishii, has assured the public that it will address the problem by “borrowing” personnel from its parent, ANA, but on a temporary basis. Of Peach’s 52 captains, eight were out of action due to illness or injury, but, in fact, the problem is more intractable.

CONTINUE READING about Japan's pilot shortage →

Australian EPA: Let them eat beef (but not cheese)

Monday, April 14th, 2014

Stuck in the middle: Australian cheese competing in the dairy case with New Zealand and Switzerland

Stuck in the middle: Australia cheese competing in the dairy case with New Zealand and Switzerland

Though its participation in the Trans-Pacific Partnership seems to be dead in the water for the time being, last week Japan signed an Economic Partnership Agreement (EPA) with Australia that could revive Japan’s TPP hopes, but before we get to who lost and who won in the Australian deal, let’s talk about cheese.

Personally, we were looking forward to some sort or tariff reduction on Aussie cheese, not because we prefer Aussie cheese over other kinds, but because all so-called natural cheese — meaning not processed — is expensive in Japan owing to the dairy farmers lobby and their demand for high tariffs on imported milk products.

Japan is close to an EPA with the European Union, but the cheese tariff will likely remain. The Australian EPA only addresses natural cheese that is exported to Japan for purposes of being blended with other ingredients to make processed cheese. The tariff on such cheeses will be reduced from 40 to 0 percent over time, but the tariff on natural cheese that is sold to the public in stores will remain at 29.8 percent, so no cheap cheddar right away.

CONTINUE READING about Japan's EPA with Australia →

Government’s new scheme to bolster social security is still hopeless

Monday, March 10th, 2014

This document was sent out several years ago after the government discovered that it had lost the pension payment records of 50 million people. The document would be used to help locate those records. The program was expensive, but very few people responded.

This document was sent out several years ago after the government discovered that it had lost the pension payment records of 50 million people. The document would be used to help locate those records. The program was expensive, but very few people responded.

The Ministry of Health, Labor and Welfare has announced that starting in April it will “take action” to increase the “collection rate” of national pension premiums, specifically those for kokumin nenkin, the obligatory pension plan for the self-employed and those who otherwise don’t belong to the company-supported kosei nenkin pension system. According to Tokyo Shimbun the idea is to send warning letters to individuals whose incomes are more than ¥4 million and who haven’t contributed for at least 13 consecutive months.

Presumably, the next step will be for the ministry to start siezing assets. The initial criteria would target approximately 140,000 pension scofflaws. Eventually, however, they will go after everyone who hasn’t paid, and since it is estimated that close to 3 million people who should be paying into the system haven’t been for at least 24 months, the job seems daunting if not impossible.

There are many reasons for this delinquency, but the main one has to do with the system itself. Basic pensions apply not only to the self-employed, but anyone who is employed part-time or on a contract basis, meaning their employers don’t pay into the kosei nenkin system. It also includes the unemployed, because according to the law every adult who lives in Japan must belong to the system, whether they work or not. And the premiums are the same, regardless of income or lack thereof: right now ¥15,250 a month (it goes up gradually every year).

The ministry assumes that about 90,000 people who should be “members” are not, and that number is probably higher, but in any case, excluding those who are exempt from paying (very poor, disabled, etc.), the rate of payment into the kokumin nenkin fund was only 59 percent as of 2012, and that portion continues to decline.

In a 2011 government survey, the number one demographic of delinquents was the unemployed, which is easy to understand. However, 28 percent of delinquent payers had part-time jobs, and they said they didn’t make enough to pay. Moreover, 22 percent of the so-called deadbeats were self-employed or working in their families’ businesses. Overall, 74 percent of those who said they couldn’t pay gave their reason as “can’t afford the premiums.” The percentage is increasing because the number of non-regular employees is also increasing.

But the government says that 10.5 percent of households whose income exceeds ¥10 million have also failed to pay their fair share, and it’s these people they are citing first. After that, 17 percent of households with incomes of between ¥5 and ¥10 million are delinquent. Both of these seemingly solvent income brackets say in surveys that they, too, cannot afford the premiums due to “financial difficulties,” but there is also a considerable number who refuse to pay simply because they “don’t trust the system.”

The pension system’s fairness has always been a point of contention. As it stands, if a person pays his fair share for 40 years, the maximum monthly payment he receives at 65 will be ¥66,000, which is not enough to live off of. The main concept behind kokumin nenkin when it was first devised was that the self-employed would still have income from their businesses or the sale of their businesses when they retired. Not only is that not necessarily true, but the bulk of basic pension members are non-regular employees who have nothing else to fall back on when they retire, unless they’ve saved and invested, which is unlikely.

Also, everyone in Japan must also pay into the national health insurance plan, which for most people takes priority since anyone can get sick at any time, but you only retire when you get old. Then there are people with some money who have bought life insurance annuity plans that give them some income when they retire. They may not see the point in paying double for a pension, so they don’t bother paying nenkin.

But the most discouraging aspect of the system is that in order to receive even the minimum payment at retirement, which is less than ¥30,000 a month, you have to pay into the system for at least 25 years. Regardless of one’s mathematical skills, it doesn’t take much calculating to understand that paying ¥15,000 a month for 25 years for a pension that will be so low one will have to apply for supplemental welfare (which is increasingly the case) is not worth it.

What’s particularly maddening about the government’s refusal to acknowledge reality is that it continues to throw money at the problem. Tokyo Shimbun estimates that for every ¥100 that the ministry will collect with its new hardline policy starting in April, it will spend ¥90. In real terms, the ministry has budgeted ¥5.3 billion for “forced collections.” Also, according to the law, it can only make delinquents pay up to two years retroactively, and if the individual has been delinquent for much longer than that the individual may wonder, “What’s the point?,” since he can only receive a pension if he’s paid for a full 25 years.

There is no sense to the system, especially when you consider that the Democratic Party of Japan wanted to change it to something more rational, and made the Liberal Democratic Party promise to revise the system when it gave up the reins of government in December 2012. Since then the LDP has done nothing, because it believes that any change would be unfair to the people who have paid into the system properly all along. Famous last words.

For young women sex industry offers safety net the government doesn’t

Wednesday, February 26th, 2014

A sign teases sexual services.

A sign teases sexual services.

One of the pillars of Abenomics is getting more women to join the workforce, but since last fall, when a young woman in Osaka was found in her apartment starved to death, the media has been reporting dire statistics about poverty among women. According to government statistics, one-third of females who are productively employable and living alone make less than ¥1.14 million a year, which demarcates the government’s poverty line.

The peak year of employment in Japan was 1997, when 38.92 million men had jobs and 26.65 million women. In 2012, the number of male workers had dropped to 36 million, while that of females had declined less, to 26.5 million. In 2012, women made up 42.3 percent of the workforce, a three percentage point increase since 1980. However, the stability of that work seems to be going in the opposite direction. The number of non-regular and part-time workers is on the increase, but the number of women in this group is disproportionately larger: 57.5 percent for females to 22.1 percent for males. Without regular employment and the opportunity for periodic pay raises, these women invariably fall into a cycle of poverty from which they can never escape. The situation for single mothers is even worse: 80 percent of those who work fall below the poverty line, even with government assistance factored in.

NHK’s evening in-depth news program, “Closeup Gendai,” has aired a series of reports on poor young women. One program broadcast in late January profiled several. There was a teenage girl working at a convenience store to support her sick mother and three siblings while taking a high school equivalency course that she hopes will lead to a night school program that will earn her a license to teach nursery school, but the program will cost her ¥80,000 a month, which means she’ll have to take out a loan that will be paid back when — and if — she gets a job. There’s a woman from Aomori Prefecture who worked three jobs but still couldn’t make enough to support herself since the minimum wage in the prefecture is only ¥650, so she came to Tokyo, where the minimum wage is higher, but so are living expenses.

Experts interviewed by NHK point out that women have traditionally taken low-paying service jobs because they weren’t expected to stay on, eventually marrying and having children. But now young women don’t have as many marriage prospects due to lower incomes for marriageable men. More of them have to support themselves, but there are only these low-paying service jobs which aren’t enough to live off of. The cycle of poverty is already in gear, because these women’s parents are themselves poor, which is why they no longer live with them. When a reporter asks one woman if she hopes to have children one day, she looks at him as if he were crazy. She can’t even feed herself. How could she feed a child?

But there are women trying to do just that. One 28-year-old single mother in Hiroshima is raising a 2-year-old and a 4-year-old. She makes ¥100,000 a month and receives a child allowance of ¥40,000 from the government. She herself grew up in a poor family and had to start working when she graduated from junior high school.

But according to one program in the series there is an area of hope for such women: the sex industry (fuzokuten). Massage parlors and escort services offer not only dormitories for staff, but also daycare if the workers have young children. Want ads indicating such benefits are common, but the NHK director could only find one company that would agree to coverage. The camera shows the manager of the business talking on the phone, telling a customer that the fee is “¥19,000 for 90 minutes, if you don’t state a preference for a worker.” At this company, 40 percent of the fee goes to the company and the rest is kept by the worker. The manager says they get a lot of applicants, especially from single mothers because of the daycare. Though some businesses run their own daycare, most contract with outside services. The dorm is also a big draw, though the manager points out that “sometimes there are more staff than there are available rooms.”

One of the employees interviewed by NHK says she is 21 and has an 18-month-old daughter. She had to start working right after the girl was born, but there are no daycare facilities that accept infants. She had no choice but to work here, and in six months she has managed to save ¥700,000. She makes ¥300,000 a month. “When I’m 25 I’ll probably have to quit, and my parents don’t know I work here,” she tells the director, but by that time she hopes to have a lot of money saved. Another interviewee is in her 30s, also a single mother. She is here to look for a job. She once worked in the sex industry but quit when she got another job. Then she fell ill and applied for welfare, but was told it would take two months to check her background and than another month to process her application. She can’t wait three months.

During the seven days that NHK covered the business, it hired 15 new employees. Though the information reported on the program is sobering, several Internet commentators have pointed out that these conditions have always been the norm in the sex industry, but it’s only now that people are paying attention because of the economic situation.

 

Image via furibond

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