Three’s a crowd

CIMG3465

A model Hebel House “nisetai jutaku” by Asahi Kasei

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.

However, the Asahi points out that the idea of tax breaks to help extended families live under the same roof has been around for a number of years, and seems to have come directly from Prime Minister Shinzo Abe himself. Formally, it’s part of his revitalization plan to get all Japanese people to work together “dynamically” for the benefit of the country, which he announced last fall to mixed reaction. While the Diet does not have to vote on it to make it a reality, lawmakers did discuss the scheme in February. The opposition said that it couldn’t find much merit in the tax plan for “boosting the birthrate,” which would seem to be the ideal end result. A scholar called in to provide an expert’s view said rather bluntly that he didn’t see how it could be effective since “most people don’t really want to live with their parents.”

Even the cabinet office might find it difficult to deny that assessment. According to a survey the office conducted prior to drafting the final tax scheme, only 20 percent of all the respondents said they wanted to live in a “3 generation” household. The portion increases with age, which makes sense since as you get older you may be more likely to want your children around to take care of you, but even for female respondents in their 70s the number who said “yes” only accounted for 30 percent of that particular demographic.

Intrigued by this seeming disagreement between survey results and policy, Asahi retraced the history of the tax cut scheme. Last October, after the cabinet was reshuffled and a new construction minister took over, he said during his first press conference that he had received an order “from the prime minister himself” to promote policies that would encourage extended family members to either live together or within close proximity to one another. The related tax plan was formalized two months later. According to the cabinet office, whose job is to “promote administration policy,” the scheme has been under consideration since 2008 because there are many people who want to raise their children “with the aid and advice of their parents,” despite the fact that the office’s own survey didn’t find that to be true.

Digging back further, the Asahi discovered even more disconnections. Tax schemes are invariably approved, and usually formulated, by the Liberal Democratic Party tax committee, one of the most powerful organs in the government, and apparently the former head of the committee, Takeshi Noda, had been indifferent to the 3-generation tax cut scheme since Abe brought it up during his first administration. Noda apparently thought it pointless and somehow wrong to use tax policy to “force a particular set of values on to families,” according to the Asahi. Over the years, however, Abe has become more determined to do just that. In a speech he gave in his home constituency of Yamaguchi Prefecture in 2014, he specifically mentioned tax reform as a means of “reducing the burden of social welfare by getting 3 generations to live together.” But in carrying out this tax policy, he implied that it had less to do with fiscal effectiveness than with wanting to “recreate the familial bonds [kizuna]” he felt were the bedrock of a healthy society.

As everyone knows, Noda was purged from the LDP in October because he didn’t want to exempt foods from the upcoming consumption tax boost, a condition that the LDP had promised to its coalition partner Komeito. With him out of the way, Abe could forge ahead with his 3-generation tax cut unhindered, but Noda’s basic objection to the plan is shared by many, and not just those in the opposition camp or people who feel it’s economically misguided.

Asahi believes that the tax scheme has problems with “fairness and neutrality.” For one thing, it only targets well-to-do families who can afford the kind of expense required to turn a single family home into a 3-generation home. The scheme does nothing to improve the living situations of lower income families, who also face major problems in terms of elderly nursing care and children’s daycare. But, of course, the 3-generation tax scheme is only one facet of the goverment’s overall welfare reform plan. What’s more insidious is that, as Abe has made clear, the scheme is a kind of first step toward recreating a social milieu that the prime minister and his ilk identify with Japan when it was, in their minds, an ideal society. One of Abe’s most trusted advisors, Tetsuo Ito, told the Asahi that the tax scheme is a way of realizing one of Abe’s goals, the resurrection of the kind of family system he idolizes from his youth and which he believes made Japan great. He wants to incorporate this belief into law and, eventually, remodel the Constitution around it. “It is an epoch-making plan,” Ito said, neglecting to mention that this belief also includes maintaining same names for couples and the somewhat outdated koseki (family registry) system, which encourages paternalism.

Asahi also points out that Abe seems to be ignoring the will of the people in this regard. In addition to the cabinet survey results, Asahi’s own survey found that when asked what they need in order to have more children, families gave “stable employment and income” as their top response, followed by “better daycare services,” “better work-life balance,” and “better labor conditions.” “Support by parents/grandparents” came in at Number 17 on a list of 20 possible answers, and when asked to choose between daycare and parental help in raising their children, families overwhelmingly chose daycare.

An interesting footnote to this story is that the “3 generation home” (sansedai jutaku) is a recent neologism coined by the government specifically for this tax scheme. Forty years ago Asahi Kasei Homes, one of the country’s first and biggest housing manufacturers, coined the term nisetai jutaku, meaning “two generation home,” to promote larger, more specialized housing for extended families. It subsequently sold 110,000 units. The LDP’s inclusion of an extra generation in the term would seem to emphasize the youngest generation. If two generations get their own separate household amenities, a third one can more easily be accommodated. Curiously, when Asahi Kasei was initially selling its nisetai jutaku, the ad copy boosted it as a way of solving the age-old “mother/daughter-in-law” frictions by giving them separate facilities within the same home and thus a means of avoiding each other. That little factoid may say more about Japan’s storied “family values” than any other.

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5 comments

  1. James Pollard · March 27, 2016

    Love this blog. Speaking of tax incentives, this post I found particularly interesting as I am from Australia and the whole issue of negative gearing on investment property has found it’s way into the political arena from both sides of politics. So interesting to keep track of what ‘goes down’ in other corners of the world. Maybe we should be looking to this blog for some better ideas on how to better link tax incentives to social policy in this country. Cheers

    Like

  2. Patrick · April 4, 2016

    “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.”

    If it’s a deduction the ¥250,000 is subtracted from your income before the tax is computed. You’d only get to subtract the tax on the ¥250,000 yen from your taxes, so if you have a 20 percent marginal rate, you’d save about ¥25,000 yen in taxes.

    If you could subtract the whole 10 percent of the cost, it’d be a tax credit, not a tax deduction. So maybe it’s a credit, not a deduction? That seems more likely, since who’s going to be motivated to spend ¥2.5 million by a ¥25,000 tax savings?

    Like

    • catforehead · April 4, 2016

      You’re right. It’s a tax credit. Thanks.

      Like

  3. Denis Guest · May 6, 2016

    Love your blog, I’ve been reading it for years, fantastic information. I lived in Tokyo for over 10 years and returned to the UK to train as an architect. One quick question which is not connected to this particular article – At present the Japanese Government are trying to rehouse people in Kumamoto, and are also planning to build temporary housing, both of which are inadequate to the needs of the citizens of the earthquake affected region. I know this sounds a bit simplistic but could the government not house some people in local hotels, onsens, and various other resort accommodation on a long term basis and pick up the tab, or at least heavily subsidise the cost? I can imagine not so many people are traveling to the region, so that means plenty of empty hotel rooms, also this would help the hotels stay in business. I saw on the TV news some images of a very crowded meeting in Kumamoto (probably a group linked with the reconstruction) and I wondered where do all these uniformed men stay, I don’t think in school gyms or tents. Also knowing how many meetings it takes to get things done in Japan, equates to many nights in hotel rooms, which really should be used for the homeless. Possibly more video conference meetings outside the affected area unless it is necessary to visit a site, this would free up much needed accommodation for local people. Do you have any data on the amount of hotel rooms in the quake area that could be used for the homeless local citizens on a long term basis? I know I sound a tad cynical but we’ve seen the bureaucracy move at a snail’s pace before and judging by the amount of damaged homes, it will take a very long time for the region to recover.

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  4. Z Ahmed · January 9

    Just discovered your blog from The Japan Times. I appreciate the detailed review of housing policy in Japan. I enjoy comparing it to my own knowledge/learning working in a city in the northeastern US. One of the issues here is “right-sizing” and “aging in place.” For older cities, existing housing stock often contains a large amount of 100-year-old homes that are 3-stories with a basement, and depending on location, have stairs both inside and outside the building, as well as narrow entrances and hallways. The design makes it difficult for elderly to live comfortably, especially when their children leave. In addition, the age of the homes means that a lot of money and effort is required for maintenance and upgrades. We are looking for ways to provide affordable options for people who want to stay in their homes, or want to move to accessible residences near where they have lived their whole lives.

    The idea of a multi-generational house as a model to advertise is not even a conversation here. If anything, multi-generational living is a necessity for low-income people, especially renters. Everyone else prefers to live alone if they can afford it, in family units, or with roommates if money is an issue. Here, sharing a rented unit with roommates is common, but I noticed in Japan that people tend to live alone if they don’t live with family. Do you have any insight about this?

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