Japanese Tax and Pension Reform Proposals 2002: Abolition of the Spouse Special Tax Deduction

J. Sean Curtin (Professor, Japanese Red Cross University)

On 3 September 2002, the Government Tax System Examination Committee stated that the tax concession for housewives called the Spouse Special Tax Deduction (Haiguusha tokubetsu koujo) should be abolished.* If this policy recommendation is implemented, it will mark another significant step towards dismantling gender bias in the tax and pension system which is currently based on the assumption that the typical family comprises a working husband and non-working wife. This configuration is often referred to as the male-breadwinner model and encourages women to be dependent on their husband's income. In recent years, a whole series of government committees and panels have concluded that Japan needs to move towards more realistic tax and pension models based on working couples and more diverse families forms.**

The underlying philosophy of current government tax and pension policy is out-of-sync with the present day realities of many Japanese families and is particularly unfair to women. Some of the most serious flaws of the current legislation are that (i) it encourages wives to be dependent on their husband's salary, (ii) is extremely disadvantageous for the wife in the event of divorce and (iii) is unfair to women who have to pay tax and pension contributions.

At present, the tax and pension system encourages wives not to earn more than 1.3 million yen a year in order to avoid having to pay tax and also to be able to qualify for free pension premiums.

If wives do low paid part-time work so that their annual income is below a level of 1.3 million yen, then they are classified as a dependent of their husband. This status also means they don't have to pay separate contributions towards the National Pension scheme. For many couples, it makes financial sense for the wife to engage in low paid part-time work in order to avoid tax and pension premiums. Breaking the 1.3 million yen threshold incurs deductions for tax and pensions which for many makes earning over this amount financially unattractive. This situation encourages dependence on husbands and forces women to engage in low paid jobs. This creates an extremely weak economic position for women in the event of divorce, especially if they have children. In recent years, the precarious financial status of divorced mothers is the primary reason for the massive rise in Japanese female poverty rates.***

Once a Japanese mother quits regular full-time employment to concentrate on child rearing, it is extremely difficult to re-enter the workforce in a full-time position. If she divorces, she often has little alternative but to engage in low-paid part-time work like many married women. Poor remuneration is compounded by inadequate social transfers and the lack of a proper child support payment system. Together, these trio of elements combine to form the three basic pillars of female poverty in Japan. Mother-headed household poverty is one of the reasons why the current system needs to be revised. ****

Another group of women who are dissatisfied with the current system are the wives of self-employed men. They must pay their own contributions towards the National Pension. Both self-employed husbands and their wives are only entitled to the National Pension.

Current government policy entitles housewives of salaried employees to a Basic National Pension without having paid directly into the system. This is because contributions are taken from their husband's salary towards their pension. These wives are also normally included on their husband's Employees' Pension Insurance or Mutual Aid Associated Pension. Pension policy requires men in higher-level pensions to pay more of their salary towards their wife's pension.

Japan has a two-tiered pension system, the basic foundation of which is the National Pension (Kokumin nenkin). The secondary tier of the system comprises of two other pension schemes, the Employees' Pension Insurance, sometimes called the Welfare Pension (Kosei nenkin), and Mutual Aid Associated Pension (Kyosai nenkin). The system divides people into three groups (1) the self-employed and university students over twenty, (2) regular salaried employees, and (3) housewives of salaried employees and salaried employees' dependents whose annual income falls below a certain level.

Wives of self-employed workers think the National Pension system discriminates against them as they have to pay contributions while the wives of salaried employees don't. This is a great disadvantage to the wives of self-employed men, many of whom are on small incomes.

The graying population, falling birthrates and future manpower shortages are all combining to make the government restructure the current tax and pension system on a more egalitarian basis. The state is now keen to encourage as many people as possible to pay into the pension system. It is predicted that by 2015, there will only be about 2.5 workers supporting every elderly person who receives a pension. The introduction of various items of family-friendly employment legislation, such as paternal child-care leave, should also gradually make the Japanese workplace more gender equal. *****

The government proposal to abolish the Spouse Special Tax Deduction is another important milestone on the road to better gender equality in Japan. Combined with other current initiatives, future Japanese tax and pension policy should become more balanced and representative of an increasingly diverse Japanese population.

References

* Seifuzeichou ga chuukanseiri - haiguusha tokubetsu koujo haishi houshin wo meiki (Japanese)
[Government Tax System Examination Committee state the Spouse Special Tax Deduction should be abolished in intermediate reorganization], Nihon Keizai Shimbun, 4 September 2002

** Pension reform planned
Asahi Shimbun, 17 December 2001

*** Poorest Japanese Families Getting Poorer
J. Sean Curtin, GLOCOM Platform from Japan, 28 August 2002

**** Japanese Child Support Payments in 2002
J. Sean Curtin, GLOCOM Platform from Japan, 9 September 2002

***** Paternal Childcare Leave in Japan 2002
J. Sean Curtin, GLOCOM Platform from Japan, 5 September 2002