In the Japanese government’s neverending quest to realign the economy through tax incentives, a new proposal is about to go into effect with little fanfare. On the surface, this scheme seems both harmless and inconsequential. Starting in April, families will receive tax breaks when they remodel their homes to accommodate “three generations,” meaning grandparents, parents, and children. In order to qualify for the deduction, the renovation has to incorporate a doubling of household functions–at least one additional bathtub, toilet, kitchen, and foyer. The amount of the deduction would be equal to 10 percent of the total cost of the renovation up to a maximum of ¥250,000, which means if the total cost of the work is ¥2.5 million you get a ¥250,000 deduction, and if the work costs more you still get a deduction of only ¥250,000. Still, that’s quit a bit since this amount is subtracted from the total tax owed to the government. Moreover, if you take out a loan for the renovation, you get another tax cut for that. In addition, there’s talk about a subsidy system, much in the same vein as the subsidy system for home improvements that incorporate barrier-free functions and energy conservation measures.

What’s interesting about this scheme is that it doesn’t follow the usual Liberal Democratic Party thinking when it comes to consumer-oriented tax breaks, especially those involving homes. Usually, the purpose of such schemes is to prop up the housing market or the construction industry, but according to the Asahi Shimbun, a representative of the Housing Renovation Promoting Council said that while the council “welcomes” the tax cut and hopes it will stimulate sales, it had nothing to do with it and, in fact, didn’t know anything about it until the media reported it.

The government, specifically the cabinet office, which is handling the wording and implementation of the directive, says that the purpose of the tax break is to “reduce social welfare.” By encouraging extended families to live together the government hopes to relieve some of the burden on social welfare functions related to nursing care for the elderly and daycare for preschool children, two issues that require immediate attention. Read More