Consumer stimulus is not the same as welfare, though the purpose is the same

December 29th, 2014 by Philip Brasor & Masako Tsubuku

Screen shot from Toyonaka, Osaka Prefecture, city office home page informing residents that the deadline for the one-time welfare handout is Jan. 5.

Screen grab from Toyonaka, Osaka Prefecture, city office home page informing residents that the deadline for the one-time welfare handout is Jan. 5.

Last weekend the cabinet of Prime Minister Shinzo Abe reemerged from its victory lap to approve an economic stimulus package worth ¥3.5 trillion whose purpose is to help rural areas cope with inflation brought on by last April’s consumption tax hike, not to mention the more recent drop in the yen’s value, which has made imported goods more expensive. Some of the money will go to local infrastructure projects, mainly in the area of disaster prevention, and a little less will go directly to consumers and companies.

This handout, however, shouldn’t be confused with the one that the government implemented last summer for poor people, though there will be overlap. In fact, some local governments, which administer the one-time welfare handouts (rinji kyufukin), are still looking for eligible people since many residents who aren’t on their welfare roles nevertheless are qualified to receive the money. So far, about 24 million have received the handout.

The only real difference between the welfare handout and the stimulus handout is the ostensible purpose: the former was designed to help low income people adjust to the CT hike, while the latter is a means of getting more money into the distribution system, but in the end the government wants the same thing: higher consumption, which is why the stimulus handout will likely be in the form of a coupon that can only be spent on goods and services. That isn’t necessary with low income people, who by necessity spend everything they get on goods and services.

According to the eligibility criteria, something like 40 percent of workers in Japan could theoretically receive the welfare handout since the main criterion for eligibility is not making enough money to pay local taxes (hikazei). If you already receive public assistance, than you can’t get a handout, but there’s a fine line between people who are eligible for welfare and so-called working poor.

In theory, citizens pay no taxes if their annual income falls below ¥350,000, but there are a lot of conditions that can contribute to being exempt from paying local tax, including the number of dependents or disabled members of one’s household, or the fact that the head-of-household is a widow. In most of these cases, the household will have already received a notice from the local government urging it to apply for the handout since the local tax office already knows which households did not pay taxes.

However, there are households that are eligible for the handout but may not know about it and so have to proactively contact their local government office to find out how to receive it. For instance, if you’re a part-time wage earner who makes less than ¥1 million a year you almost certainly qualify; also persons 65 or over who live on pensions that amount to less than ¥1.55 million a year; persons under 65 who live on pensions of less than ¥1.05 million; and persons who receive income from real estate and who make less than ¥350,000 after expenses.

In addition, households with children and which make less than a certain amount can also receive ¥10,000 per child under high school age, thus effectively reinstating the Democratic Party of Japan’s plan to give handouts to everyone with children, regardless of income, a plan the Liberal Democratic Party cancelled when it regained power. However, if these households already receive public assistance they get no extra handouts for children.

If any of the above criteria are true for your situation, you should contact your local tax office as soon as possible. The deadline for some municipalities has already passed, but many are still taking applications for the funds: ¥10,000 for each person in a qualifying household or ¥15,000 for basic pensioners who pay no taxes. Also, despite conservative propaganda to the contrary, foreign permanent residents also qualify.

It should be noted that the handout will not necessarily compensate for the increase in expenses brought on by the consumption tax. It’s estimated that a person with an income of only ¥1 million a year will pay ¥20,000 a year more in consumption tax after the hike.

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