Archive for the ‘Taxes & Welfare’ Category

Political gift culture refuses to die

Tuesday, October 21st, 2014

Former Justice Minister Midori Matsushima faces the error of her campaigning ways in the Lower House on Oct. 15. | KYODO

Former Justice Minister Midori Matsushima faces the error of her campaigning ways in the Lower House on Oct. 15. | KYODO

With almost breathless speed, two of Prime Minister Shinzo Abe’s most recent cabinet appointments, trade minister Yuko Obuchi and justice minister Midori Matsushima, resigned after it was revealed they violated political funding laws. Matsushima’s downfall, which revolves around her free distribution of uchiwa (round fans) to voters, may have as much to do with political expediency as with breaking rules, but Obuchi’s use of funds earmarked for public use to purchase gifts and supplement recreational outings for supporters was clearly illegal.

Which isn’t to say it’s not common. As one anonymous veteran of the ruling Liberal Democratic Party — to which Obuchi belongs — told Tokyo Shimbun, the Gunma lawmaker’s problematic actions used to be a fairly normal practice in the Diet. Obuchi is accused of using her political funds, which come from taxpayers in the form of seito kofukin (political party subsidies), revenues from tickets sold for fund-raising get-togethers, and donations from individuals and groups, to supplement “theater tours” for her supporters. Obuchi’s supporters each paid ¥10,000-¥12,000 to go to Meiji-za in Tokyo to enjoy a day of stage performances. However, in her required political funds report there was an obvious discrepancy. Since 2007, the amount received from supporters for these excursions totaled ¥11.9 million, and it is deemed they cost more than ¥60 million to carry out, with the difference being ¥53.3 million that came from Obuchi’s funds.

The veteran says that such jaunts for supporters were normally arranged directly by the politician’s staff, but ever since the law became more thoroughly enforced, lawmakers have entrusted the job to travel agencies so as to divert the trail of money.

In her own defense, Obuchi professed that she didn’t know much about the tours, and while such naivete is perhaps understandable for someone still so relatively new to the game, it must be pointed out that she “inherited,” as it were, her father Keizo Obuchi‘s constituency when he died in 2000, and that included his political fund reserves of ¥120 million, not to mention the “sources” of that money, meaning Gunma individuals and groups who counted on him to see to their interests. It also means she took on his staff, who obviously should have known better.

But theater tickets to see some over-priced enka star isn’t the most of it. What really indicated Obuchi’s ignorance over her risky exposure to scandal was the use of political funds to purchase gifts, a lot of gifts. Former politician and current Keio University professor Yoshihiro Katayama expressed surprise to Tokyo Shimbun when he heard about the scandal. “Are they still doing that?” he asked wryly with regard to political gift-giving.

Though the media focus was on infant goods and accessories from a store owned by her brother-in-law, the funds report also includes mentions of cigars, gift coupons, exotic foods, an expensive stole and ¥685,000 worth of clothing by designer Jun Ashida. All these items were purchased at expensive Ginza department stores and earmarked as kosaihi (entertainment expenses), which is usually code for “gifts,” though, apparently, some of the items Obuchi bought for herself. If she offered these items as gifts to people within her constituency it would constitute a separate crime. When it is all added up over the years, the money spent on these items comes to more than ¥100 million, which apparently isn’t a big deal for Obuchi’s camp. In 2012 alone she took in ¥180 million.

Gift-giving is a common custom in Japan that comes with its own set of priorities. Usually, gifts are offered to superiors — bosses, teachers — in the hope that the recipient will do well by the giver in the future. It’s why people slip a surgeon a box of pastries with ¥100,000 tucked inside to make sure he does his best when he operates on the gift-giver. Japan’s election and political funding laws are very strict about such gifts, since by the very nature of the gesture the giver expects something in return.

As Tokyo Shimbun pointed out, the supporters who partook of the theater tours probably felt they deserved the gesture because of their support and certainly didn’t think there was anything wrong about it. But the fact is, there are even strict rules regarding compensation for campaign workers. A candidate can provide lunch only if it is prepackaged and each volunteer gets the exact same item as the next volunteer. And it all has to be written down.

That’s why Matsushima’s uchiwa were such a problem. She was essentially buying votes. But Obuchi’s use of gifts is baffling since she seemed to be giving them to friends and family, as well as to herself and her children. There didn’t seem to be any expectation of returned favors, so the only explanation is ignorance, which, to some people, is even worse than venality.

In any case, political funds are only supposed to be used for political activities, not personal fulfilment. A politician who doesn’t understand how to break the rules without getting caught isn’t a politician at all.

How employer transportation allowances helped create commuter hell

Tuesday, October 14th, 2014

Rush hour at Yurakucho Station

Rush hour at Yurakucho Station. By nesnad [CC-BY-3.0], via Wikimedia Commons

According to the Ministry of Health, Labor and Welfare, about 86 percent of Japanese companies pay their employees’ tsukin teate, or “commuting allowance.” To many Japanese the high rate will probably be less surprising than the fact that not all companies pay it. It’s a common misconception that the allowance is somehow a legal mandate, but it isn’t.

Employers don’t have to pay their workers’ transportation expenses, but most do. In fact, as the so-called lifetime employment system that was so central to Japan’s postwar economic growth has slowly been abandoned over the past two decades, more companies have opted to either cut back on transportation allowances by limiting the amounts, or eliminating them altogether. The above figure is for regular full-time employees, and the growing trend among employers now is to hire non-regular employees, either as temps or contract workers.

But while transportation expenses are not legally mandated, they are regulated. Companies can write them off as business expenses, but only up to ¥100,000 a month per employee. If an employee’s commuting costs exceed ¥100,000 in a month, the excess is subject to tax as if it were income.

That’s a lot of money to spend on commuting, even in Japan, and, for sure, the vast majority don’t spend that much. But inadvertently or not, the tsukin teate system has contributed directly to the concentration of businesses in major cities, thus exacerbating the problem of long commutes and over-crowded public transportation.

If employees had to pay their own transportation expenses, which is the case in most developed countries, they would naturally find work that is as close to their homes as possible or move their residence to within a comfortable commuting distance of their work place.

In other words, they would balance their job particulars — working circumstances and salaries — with commuting conditions — length and cost. In any case, there would likely not be the situation that you now have in the Tokyo Metropolitan Area, where commutes can take two hours one way on trains that are often over 150 percent capacity.

In its series commemorating the 50th anniversary of the Shinkansen “bullet train,” Tokyo Shimbun described how the iconic high-speed express gave rise to a “new way of working.” One article profiles a man named Akira Wachi, who has commuted from his home in Numazu, Shizuoka Prefecture, to his job in the Osaki area of Tokyo for 26 years via Shinkansen. The trip takes 90 minutes one-way. In 1976, his company, which happens to make electrical devices used in Shinkansen, transferred him from Tokyo to its Numazu factory. Six years later, thinking he would not be transferred again, he built a house. He was 32 years old. However, six years after that he was transferred, back to the company’s headquarters in Tokyo. With two children in elementary school he didn’t want to move his family again so he applied for permission to commute by Shinkansen. His request was approved.

His commute is now ¥87,600 a month, and his company bears the entire cost. (Reserved seats, like Green Cars, are not paid for by tsukin teate) In fact, he is not the only employee who commutes by Shinkansen. There are 112 other people in the head office who do so as well. The cost to the company is obviously formidable, and surely adds to the cost of its products. The various JR companies that operate the Shinkansen have encouraged commutes by adding LAN capabilities on its trains. One man, who commutes every day from his home in Shizuoka to Tokyo, says he gets a lot of work done on the train even before he arrives at his office.

The article goes on to point out that during the bubble era, when property values rose greatly, salarymen built homes farther from city centers, and could do so because their companies paid for their commutes, so in a sense tsukin teate also contributed to skyrocketing property values. As more Shinkansen lines were built, the train was used more and more as a means of commuting. Takasaki Station in Gunma, which is one hour and 11 minutes from Tokyo Station by Shinkansen, sells about 5,700 Shinkansen commuter passes per month.

In order to attract new residents to its area, the city of Saku in Nagano Prefecture offers a commuting subsidy: up to ¥25,000 a month if the new resident’s employer does not pay the full amount of the commute via the Nagano Shinkansen, which stops at Saku-Daira station. Since the monthly commuting cost from Saku-Daira to Tokyo is ¥132,830, even if the employee’s company pays the full ¥100,000, the employee will have to pay ¥7,830 a month out of pocket. And it isn’t just Tokyo. Some cities located along the relatively new Kyushu Shinkansen offer subsidies to commuters.

It’s notable that the Kyushu Shinkansen was mainly built with tourism in mind and is currently operating in the red, which brings up another by-product of the tsukin teate, which is the enormous revenues of railways in the major industrial corridor between Tokyo and Osaka. JR Tokai, which operates the highly profitable Tokaido Shinkansen between those two cities, says that revenue from monthly and multi-monthly passes increased eleven-fold between 1987, when Japan National Railways was privatized, and 2013.

On the plus side these profits have led to even better service in this corridor, but because all the money is concentrated there, regional railways are going out of business, forcing even more people to move to the cities. Many will say that’s simply the way the market works. Exactly.

Foreign tourists expected to take up (some of) the slack in consumption

Monday, October 6th, 2014

Everyday low prices: Duty Free store at Narita Airport

Everyday low prices: Duty Free store at Narita Airport

According to a survey of 12,000 tourists in 2013 carried out by the Tokyo Metropolitan Government, the Chinese spend more than any other group, which isn’t surprising. What is surprising is by how much they outspend other nationalities.

On average, a Chinese visitor spends ¥191,741 in Tokyo. The average spent by all foreign tourists in Tokyo is only ¥46,546, which means Chinese spend about three times as much.

After China, the most spent is by Singaporeans (¥135,377), and then Spaniards (¥129,558). Another notable aspect of Chinese spending is that the bulk is not spend on accommodations or dining, but rather on souvenirs, about ¥122,000. The most popular area for Chinese shoppers is Ginza, because that’s where all the luxury brand stores are.

The government wants them to spend even more, and is thus expanding the list of items that foreign tourists can buy without having to pay consumption tax. Previously, consumables like food, liquor and cosmetics were not exempt from CT when bought by foreign tourists at stores in Japan, but since Oct. 1 they are.

The main beneficiary of this new regulation is department stores, which have been doing badly since the consumption tax went up in April. One of the reasons consumables weren’t exempt before was that there was no way to check if the items were consumed in Japan or overseas, and anything consumed in Japan should be subject to tax. But many Chinese buy food and liquor in Japan as souvenirs for relatives and friends.

The discount is given at the point of purchase, which means the store has to be registered to waive the consumption tax. They check the buyers passport to make sure he or she is not a Japanese national. Technically, the item can be checked at the airport to make sure it wasn’t consumed before leaving the country, but that sounds almost impossible to do.

At present foreign tourism is one of the only bright spots in terms of revenues. In August, spending by foreign tourists was 40 percent more than it was last August, and ¥4.7 billion of it was spent in department stores alone. These numbers will probably go up more now that the yen is dropping.

The Ministry of Economy, Trade and Industry estimates that the new duty-free rule will mean a loss of ¥9 billion in CT revenues for the year, but it will also mean a boost in sales of about ¥78 billion, which means it will make up for at least some of the domestic consumption that was lost after the tax increase was implemented.

The duty free system was established in the early 1950s, when less than 40,000 foreign tourists visited Japan in a year. Department stores have always been lobbying the government to expand the list of exempt items, even though administering the system is bothersome for retailers, as well as for tourists, who have to fill out forms. METI is thus thinking of streamlining the system even more by 2020, when the Olympics will be held. At present 5,777 stores belong to the duty-free system.

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).

CONTINUE READING about hometown tax →

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.

The price is right, but sometimes difficult to read

Sunday, April 27th, 2014

Do the right thing: this supermarket tells customers that all prices indicated include the consumption tax

A quick survey by the Ministry of Internal Affairs and Communiciations has revealed that the average price of goods and services, excluding “fresh produce,” since the consumption tax hike went into effect April 1 has increased 2.7 percent, which sounds about right since the hike itself was 3 percent. When the consumer price index is announced next month, the ministry projects that it will be 3 percent higher than it was a year ago, so everything is going as planned.

Of course, that’s the word from on high. Here in the real world, meaning in the stores where we all shop, the situation isn’t that clear-cut.

Some consumers will notice that prices have gone up much more than what they would perceive as 3 percent, while some prices have actually gone down, and many prices have stayed the same.

CONTINUE READING about post sales-tax prices →

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 →

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